Funds Of Funds

By: EconomyWatch   Date: 23 November 2010

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Funds of Funds is a kind of investment fund which normally uses a particular strategy to hold a portfolio of several other investment funds instead of directly investing in various kinds of bonds, shares and different kind of other securities. The Fund of Funds is often termed in other words as multi-manager investment. One can find a great variety in Fund of Funds and all of these types have one thing in common and that is they are all investing in various types of collective investment scheme.

One can find that the Fund of Funds has various advantages and disadvantages in its parts. Some of the advantages and disadvantages are:
Advantages of Fund of Funds
  • Simplicity of the Fund of Funds: A person to achieve good results while can invest in one Fund of Funds rather than investing in several different funds. This helps the person to concentrate on only one thing and also helps the investor to take care of limited number of papers.

  • Cheap For the New Investors: One finds it very difficult to diversify initially as he has minimum number of accounts. For this problem the Fund of Funds become very popular for the new investors as this would help them to diversify among thousands of funds through this .

  • A mutual fund generally diversifies through a great number of stocks but a Fund of Funds goes through many different funds which provides the Fund of Funds double diversification.

  • One can also have the institutional advantages as one can make investments in various funds which are in other ways off-limit for the retail investors. One also gets the advantages of load funds and for that one does not have to pay the load.
Disadvantages of Fund of Funds:
  • Expense Ratios: Nearly all Fund of Funds carry an expense ratio that are on the higher side. These higher ratios can bring down the amount of returns one was scheduled to get.
  • One also has to pay some extra charges for keeping the Fund of Funds in force and this can also curtail the amount of income one expected to get.






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