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Fund of Funds

When you think mutual funds, you usually relate to equity-based funds or similar. However, if you explore the mutual-fund universe, you’ll find debt, equity and many related securities, all pooled together to suit varied financial goals. Moreover, mutual-fund schemes not only consider the asset type but also your capacity to bear the risk. Debt based funds are less risky, while equity-based ones have risks associated with markets.

Just as mutual-funds are diverse, the type of funds themselves is diverse as well. There are purely-debt and purely-equity portfolios; you’ll also have the option to invest in Hybrid portfolios which are a mix of debt and equity. These portfolios give you the thrill of investing in equities and get corresponding returns on invest. On the other hand, you get the benefit of investing in consistently performing debt securities.

Now, what if you wanted to invest in all or most of them? What if you couldn’t decide? Then the best thing for you to do is, invest in a ‘fund of funds’.

This type of fund is also known as a multi-manager fund. It invests in other mutual funds, such that the composition of assets can be either debt or equity, based on the investment objective. It is strategically curated to give you, as an investor, not only a diversified portfolio, but also maximum exposure to investment assets and varied mutual-fund schemes.

Investment Plans Recommended by Angel BEE

If you have a limited amount to invest, you obviously do not want to put it where there’s maximum risk. Which is why we recommend investing in a fund of funds. The most popular or sought-after fund of funds products primarily are:

  • Asset Allocation Funds: These invest in an array of asset classes like debt, equity, commodities, and gold or other metals.

  • Gold Funds: These funds have allocations in gold-mining company stocks or the price of gold itself.

  • International Fund of Funds: These comprise of security allocations of international companies.

Whichever you choose, one fact difficult to ignore, this type of investment is simpler and is easier to keep track of. Instead of investing in 5 or 10 different mutual funds, you can simply opt for this option. Here are our recommendations:

Top Fund-of-Fund Plans

The best fund of funds will give you exposure to multiple asset classes and securities. Also, this diversification implies, your risk is minimised because it is spread across individual schemes. Your equity assets will get the best returns when markets are positive, and the other assets will keep you safe from market volatilities during a slump. It is a great way to invest especially if you have a limited investment budget. Finally, this type of fund does most of the work for you, instead of investing in multiple mutual-funds to achieve varied financial goals. Here’s the list of top options:

Everything You Need to Know About Fund of funds

  • Diversification: Investing in a fund-of-fund introduces to multiple asset types and securities. It combines a group of mutual-fund schemes which can be debt, equity, commodities, and gold or other metals. The strategy is, instead of direct market participation—which may be riskier for some investors—you can invest in underlying securities.

  • Minimised Risk: No investment is completely ‘risk-free’, however, by investing in this fund, you’re essentially spreading your risk across securities. It is ideal for investors with a low-risk appetite to opt for this type of fund.

  • Good Returns: This type of gives you good returns on your investment because of the allocation of equity assets in the portfolio mix.

  • Great for a Limited Investment Budget: If you have a limited budget, you’ll be even more cautious of the risk involved. Which is why, this fund is ideal, moreover, if you have a low capacity to bear the risk, this fund ensures your risk is mitigated.

Why Fund of funds?

Here’s why you should invest in a fund-of funds:

  • Maximum Exposure, Mitigated Risk: Since a fund of funds invests in a group of mutual-funds, you get a mixed-bag of assets and securities. Though the equity-oriented assets have associated market risks, these will be mitigated by the other underlying securities.

  • Higher Returns Even with a Limited Investment Budget: These funds are ideal for investors who have a limited investment budget. Returns are high because of diversity of securities.

  • Easy to Manage and Track: Instead of investing in multiple mutual-fund schemes, you can your investment objectives with a single investment. A diverse asset and securities allocation can be aligned with any or all financial goals. Moreover, it’s always better to track one investment rather than many.

Get Better Returns with Fund of funds

Investing in a fund-of-fund is like hiring an interior designer to re-do your home; of-course you can always re-design you own home yourself, but you prefer a professional instead. Similarly, a fund-of-fund does your wealth-creation work for you. It saves the trouble of researching endless schemes, aligning & re-aligning your financial goals and eventually making a (often misguided) investment decision. The equity-oriented underlying securities will ensure you get highest returns when markets are on an upward trend. On the other hand, the underlying securities of the other asset classes ensure that market volatility risks are mitigated. Especially when markets are in a slump, this type of fund is the safest and best option.

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