Definition of Fund of Funds Schemes
Fund of Funds Schemes is an investment strategy in which funds are invested further in other funds rather than investing them in bonds or other stocks.
This FOF can be made with the fund company and that is called fettered management or can be made in an external fund house managed by other funds managers that is called unfettered management.
Brief Explanation of Fund of Funds Schemes
Different types of FOF are available
- Hedge Fund FOF
- Mutual Fund FOF
- Investment Fund FOF ETC
- Private Equity Fund FOF
Advantages of FOF:
- Diversification: It allows small investors with minimum amount to invest in diversified fund rather than directly investing in securities. It reduces high volatility and maintain appropriate returns.
- Expert managers and professionals advice is available and they handle the funds efficiently.
Disadvantages of FOF:
- Management fee can be really high because of the fee charged by underlying funds.
- Return on FOF is taxable amount.