Fund of Fund: Another investment plan for investors

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The Fund of Funds is one investing option (FOF). A mutual fund that primarily invests in the units of another Mutual Fund scheme is known as a FOF. It is essentially an investment strategy that consists of owning a portfolio of other investment funds rather than investing directly in stocks, bonds, or other assets. The underlying investments might be mutual fund schemes from the same fund house or different fund houses.

FOFs are classified into the following categories:

There are several FOF solutions available. The underlying might be just equities or a mix of several asset types.

1)      Asset Allocation FOF

As the name implies, such a FOF will have funds investing in equities, debt, and gold as its underlying assets for asset allocation. ICICI Prudential Asset Allocator Fund, for example. If you are an investor seeking a one-stop solution to your asset allocation needs, you may want to explore a FOF that specializes in asset allocation.

2)      International FOF

The fund manager in this case invests in Indian mutual fund schemes that invest in various worldwide markets or in mutual funds that operate in target markets. For instance, consider the ICICI Prudential Global Advantage Fund. The fund in this case consists of funds located in India that invest in both developed and emerging economies.

3)      Gold-based FOF

A Gold FOF will invest in mutual funds that invest in gold, such as the Gold ETF. The ICICI Prudential Regular Gold Savings Fund (FOF), for example, invests in the ICICI Prudential Gold ETF.

4)      ETF FOF

The underpinning of such a FOF will be ETFs. The ETF market has expanded in recent years, with a plethora of thematic/sectoral and smart beta ETFs. The FOF structure is designed in such a way that investors who do not have a Demat account can nevertheless access the ETF. The ICICI Prudential Passive Strategy Fund (FOF) is one such fund that actively manages the market cap, sector/thematic, and factor-based allocation using ETFs.

5)      Debt-based FOF

If you are an investor wanting to allocate to debt but are unclear which type of fixed income mutual fund is best for you, this FOF can help. Depending on the changing macroeconomic, the fund manager would deploy capital among categories of funds that are expected to benefit the most from the current market scenario.

6)      Equity-based FOF

An equity FOF, like a debt-based FOF, will have exposure to several equity mutual funds with various investing strategies inside a single FOF. For example, the ICICI Prudential India Equity FOF portfolio includes eight products from five different investment companies. Each of these funds has a distinct management style and invests in a diverse range of stocks based on market capitalization.

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