Fund of Funds
A fund of funds or FOF is a type of investment strategy in which a person or company invests in other mutual funds. It is more commonly known as multi-management, because in FOF, investor invests mutual funds in other mutual funds and allocates variety of fund categories into a one single investment fund.
Investing in a collective scheme of investment increases the chance of diversity as compared to other small investors having smaller shares of securities. This diversification allows investment to eliminate the risk of volatility while securing average returns. Generally people invest in fund of funds from pension funds, endowment funds, hedge funds, etc.
The architecture of fund of funds is fruitful for allocating assets funds. In addition, since a fund of funds have many different funds which themselves invest in many different stocks, it is possible for FoF to own the similar stock via several various funds. A fund of funds allows greater convenience in term of less paper work and record keeping. It is also easy to view how the various funds are performing in market cycle.
Some advantages of fund of funds are discussed below:
- Fund of funds allows person to concentrate on one investment rather than collecting coins from each road.
- It is a cheaper investment as compared to others and any newly start-up company or young entrepreneur can easily diversify his/her portfolio of investment.
- As FoFs goes via many diverse funds, it allows two-fold portfolio for diversification.
- Investors can also have the advantage from the institutional point of view, as one can make the investment in different funds which are limited for the retail investors.
- FoFs managers are specialized in targeting right mutual funds for the investment that brings them increased portfolio of best mutual funds schemes.
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