Fund of funds
Also called: FoF · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
A fund of funds (FoF) is an investment fund that puts its money into other funds, not directly into shares or bonds. The FoF picks the funds, and those funds pick the actual securities. This gives investors wide diversification (their money is spread across many funds) and access to funds they could not easily reach on their own. The downside is two layers of fees, one charged by the FoF and one by each fund it holds.
Example
SIDBI runs the Fund of Funds for Startups (2016). It does not invest in start-ups directly. Instead, it invests in SEBI-registered Alternative Investment Funds (AIFs), and those funds invest in start-ups.
Don't confuse with
- Index fund: this invests directly in the shares of an index such as the Nifty 50. A fund of funds holds units of other funds.
Related concepts
- Mutual fund
- Net Asset Value
- Systematic Investment Plan
- Index fund
- Exchange-Traded Fund
- Gold ETF
- Real Estate Investment Trust
- Infrastructure Investment Trust
- Domestic institutional investors
- Participatory notes