FUND of FUNDS Rumi Jain 2010191 SaritaChowdhary 2010296
Flow of Presentation What is Fund of Funds? How it Works? Types of 'fund of funds‘ Why you should invest in FOF? Indian Context Why you should not invest in FOF? Example : Bernie Madoff scandal
What is Fund of Funds? A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in share, bonds and securities.
What is Fund of Funds? Often referred to as multi-manager investment.
types of 'fund of funds' Mutual fund FoF: A Mutual fund FoF invests in other mutual funds. Just as a mutual fund invests in a number of different securities, a fund of funds holds shares of many different mutual funds. Hedge fund FoF: A Hedge fund FoF invests in a portfolio of different hedge funds to provide broad exposure to the hedge fund industry and to diversify the risks associated with a single investment fund.
Why you should invest in FOF? Simplicity - one-stop shopping Double diversification. Cheap For the New Investors: Institutional advantages. Good for the beginners/lay investors. Provide Liquidity. Portfolio of managers Additional expertise.
Indian Context FoFschemes suffer from immense lack of popularity. Only 8 out of 43 operating funds are offering FoF schemes. The ratio of AUM of funds offering FoF schemes is just 0.41% of the total AUM. Returns are also not attractive.
Why you should not invest in FOF? More Can Mean “Di-worse-ification”
Why you should not invest in FOF? Doubling up of fees
Why you should not invest in FOF? Netting Risk/Return
Bernie Madoff scandal The due deligence and safety of investing in FoFs has come under question as a result of the BerniwMadoff scandal. Where many FoFs put substantial investments into the scheme. 2008 and 2009 saw fund of funds take a battering from investors and the media on all fronts from the hollow promises.
Conclusion FOFs can be pain-free entrance for investors Careful management is necessary for FOF to prevent holding overlapping securities. It require a very professional management.
Conclusion Simple, Direct Investment may Be Better Less transparency Bigger is Not Necessarily Better