Fund of funds (FoF) is a well-sought way to invest in the trading world. By putting money into a variety of underlying assets, these funds give investors a chance to diversify their investments. For investors looking for a balanced investing strategy, this method offers exactly what they want. Let’s explore what it’s all about!
FoF is a pooled investment vehicle, making investments in various kinds of funds. Instead of investing directly in stocks, bonds, or other assets, a FoF holds a portfolio of other investment funds. A FoF may be fettered or unfettered, depending on if it allows investing in funds managed by the same investment company or separate organizations.
Open Your free Demat Account in just 5 minutes!
Depending on the fund's investment goal, FoF can have different forms. Here are a few popular types, each with a unique goal and approach.
1. Multi-Asset FoF: As the name suggests, these funds make investments in a variety of assets. To control risk and possibly increase returns, its aim lies in diversification across various investments. The diversity among different asset groups also reduces investment volatility.
2. Exchange Traded FoF: ETF of funds makes investments in a portfolio of other exchange-traded funds. ETF of funds gives investors exposure to numerous ETFs that cover different market areas or investing strategies and diversification opportunities. However, trading and Demat accounts are necessary to invest in ETFs.
3. Gold FoF: This FoF gathers investor funds to invest in a variety of gold-related products and investments. They are designed to monitor gold's performance and give exposure to a variety of assets that are tied to the metal. Gold FoF provides liquidity, transparency, and the chance of capital growth.
4. International FoF: It pools client funds to invest in a diverse portfolio of mutual funds or ETFs that target global markets. Investors can geographically diversify their portfolios and possibly take advantage of global market possibilities by investing in them.
Before making any investment decisions, investors must perform extensive research. Investors need to comprehend the characteristics of individual FoF and their potential advantages and disadvantages. They should further consult with financial experts. As a result, investors can make correct choices that are in line with their investment goals and preferences.
FoF provides investors with a practical and diversified means to access a variety of investment options. They give access to exclusive investment opportunities, investment management expertise, and immediate diversification. Like any investment, FoF should be assessed in sync with an investor's overall portfolio.