Fund of Funds

Mutual fund investments come in various sub categories that require keen attention to details, lest an investor finds himself investing in the wrong type. A fund of funds investment is a bit different from other categories in that, it does not invest in other securities like stocks and bonds. Instead, it holds portfolio of other investment funds. In other words, it is a multi-manager type of investment.

Under this category there are also other sub categories, all of which hold portfolios for different investment securities. For example, there are mutual FOF, hedge FOF, private equity FoF and investment trust FOf. The features of all these categories are significantly different from each other, depending on the type of securities they invest in, the risk factor involved as well as the type of management required in each.

Due to their collective nature, fund of funds types of investment experience a wide range of diversity. Increase in diversity translates to relatively low risk as well as high rates of returns from the various securities. A manager of the FoF is entrusted with the big task of ensuring that your money is only invested in the best securities. He is entrusted with the task of checking that the performance of your investment is maintained at the best level possible.

FOFs are faced with some challenges as well, just like all other types of investments. For example, the rate of return is not always guaranteed; it may rise or fall depending on the market forces. In addition, FOFs are faced with higher management fees unlike other types of investments. This is because the portfolios that they hold are also subject to some management fees which are charged indirectly through the FOFs.

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