Fund of Funds

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Fund of funds is a type of mutual fund in which investment is done in other mutual funds. Fund of funds offer a diversified portfolio to the investors.

A mutual fund is a consortium of independent organizations that accumulates the investments of investors, both institutional and individual having common financial objectives.

The corpus accumulated by such investment is invested in capital market instruments. The capital market instruments in which such investments are made are, shares, debentures and other types of securities.

The profit earned on such investments is shared by the unit holders in proportion to the number of units owned by them. Mutual fund is one of the most popular and suitable type of investment instrument for the common investors. The main advantage of investing in mutual funds is that they are relatively low in price and involves lower risk factor in comparison to other forms of financial market investment instruments. Moreover, the Chapter III of the Income Tax Act, 1961 provides tax exemption on mutual fund investments.

Authorities to the fund of funds in India:

The fund of funds in India operates according to the guidelines laid down by the Association of Mutual Funds of India (AMFI). Further, the Association of Mutual Funds of India (AMFI) operates in accordance with the laid down guidelines of the Securities and Exchange Board of India (SEBI).

Definition and features of the Fund of Funds:

Amongst the wide variety of mutual funds are available in India, fund of funds is a type of mutual fund wherein, the corpus accumulated is invested in types of other mutual funds. Further, the most significant feature of fund of funds is that it holds shares of a variety of mutual funds. Furthermore, Funds of funds are structured in such a way so as to attain a more diversified approach than what the other types of mutual funds offer. Generally, the Fund of Funds costs higher than any other type of mutual fund. This is due to the fact that the cost of Fund of Funds involves part of the expense fees charged by the component funds.

To knoe more about Classification of Mutual Funds click on the following links:

Last Updated 06/30/2011

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