While looking for top passive funds India, have you come across FoFs? So, what are FoFs or Fund of Funds?
As its name hints, FoFs or Fund of Funds are passive funds India types that invest in other mutual funds. They are a type of passive funds India since they mirror other mutual funds in terms of composition and returns. So, you can invest in a combination of different passive funds India through a single FoF SIP (Systematic Investment Plan). However, there are international FoFs too you can invest in and they can be a better option for those wanting to invest in international mutual funds.
Let us learn more about international FoFs, top international FoFs in India and their advantage as a passive funds India type in detail.
Investing in International FoFs
Investing in the international FOFs in India could allow investors to gain exposure to global markets without direct foreign investment complexities. These funds pool money from various investors and invest in a basket of international funds, providing diversification across geographies and asset classes.
Here are some of the key benefits of international FoFs:
- Diversification: Reduces risk by spreading investments across multiple markets.
- Access to Global Opportunities: Invest in companies not listed on Indian exchanges.
- Professional Management: Fund managers handle complex international markets.
- Currency Hedging: Some FOFs offer hedging options to mitigate currency risk.
Here are some of the important considerations for investing in international FoFs:
- Currency Fluctuations: Exchange rate movements can impact returns.
- Higher Costs: FOFs often have higher expense ratios due to additional layers of management.
- Market Risks: Global markets are subject to economic and geopolitical risks.
Top FoFs in India as per 1-year returns
Here are the top ten international FoFs passive funds India based on one year return period:
| Fund Names | 1 Year Returns |
|---|---|
| Edelweiss US Technology Equity FoF Growth Direct Plan | 52.90% |
| Bandhan US Equity FoF Growth Direct Plan | 48.40% |
| DSP Global Innovation FoF Growth Direct Plan | 45.60% |
| Kotak Nasdaq 100 FoF Growth Direct Plan | 45.10% |
| DSP World Gold FoF Growth Direct Plan | 43.90% |
| Axis Nasdaq 100 FoF Growth Direct Plan | 40.00% |
| Navi Nasdaq 100 FoF Growth Direct Plan | 39.70% |
| Kotak Global Innovation FoF Growth Direct Plan | 37.70% |
| Axis Global Innovation FoF Growth Direct Plan | 37.70% |
| Kotak International Reit FoF Growth Direct Plan | 26.20% |
As on 31/10/2024
As you can observe from the table, there are many international FoFs investing in Nasdaq funds. Other than that, there are funds investing in commodities, the US equity mutual fund market, thematic funds based on technology, growth, innovation and those investing in international REIT (Real Estate Investment Trust) funds. The one year returns for these passive funds India range from more than 50% to less than 30%.
Top FoFs in India as per 3-year returns
Let us now look at top FoF passive funds India based on three year returns. Here is the table for the same.
| Fund Name | 3 Year Returns (CAGR) |
|---|---|
| Mirae Asset NYSE FANG ETF FoF Growth Direct Plan | 19.60% |
| Kotak Nasdaq 100 FoF Growth Direct Plan | 13.78% |
| Invesco India Invesco Global Equity Income FoF Growth Direct Plan | 13.40% |
| Bandhan US Equity FoF Growth Direct Plan | 13.12% |
| Motilal Oswal Nasdaq 100 FoF Growth Direct Plan | 12.80% |
| SBI International Access US Equity FoF Growth Direct Plan | 12.00% |
| HDFC Developed World Indexes FoF Growth Direct Plan | 10.40% |
| DSP US Flexible Equity FoF Growth Direct Plan | 10.40% |
| DSP World Gold FoF Growth Direct Plan | 9.83% |
| Axis Global Equity Alpha FoF Growth Direct Plan | 9.60% |
As on 31/10/2024
From the above list of top funds from the three years return category of international FoF passive funds India, you can see that most of these funds are investing in either global equity funds or global funds investing in international equity based indices like Nasdaq, and NYSE FANG. There are funds investing in global funds mirroring multiple indices. Further, there are international FoFs investing in global commodity funds like gold.
Limitations of Investing in Global FOFs in India
While the international Fund of Funds can offer a convenient way to access international markets through passive funds India, they come with several limitations. These are as follows:
Higher Costs
- Multiple Layers of Fees: FoFs involve multiple layers of management, leading to higher expense ratios compared to direct investing in international funds. This includes fees charged by both the FoF and the underlying funds.
- Currency Conversion Costs: Foreign exchange fees can further erode returns, especially for funds that invest in currencies with high volatility.
Currency Fluctuations
- Exchange Rate Risk: Changes in exchange rates can significantly impact the performance of the FoF, especially during periods of volatility. A weakening of the Indian rupee against the currencies of the underlying funds can reduce returns.
Complex Investment Structure
- Understanding Underlying Funds: It can be challenging for passive investment India investors to fully understand the intricacies of the underlying funds and their investment strategies, especially for those who are not familiar with international markets.
- Portfolio Transparency: FoFs may have complex investment structures, making it difficult to track the performance of individual holdings and assess the overall risk exposure.
Performance Tracking
- Difficulty in Benchmarking: Assessing the performance of a Global FoF against a relevant benchmark can be complex due to the diverse nature of its investments and the impact of currency fluctuations.
- Performance Lag: FoFs may underperform the underlying funds due to factors like fees, currency exchange, and timing differences in investment decisions.
Regulatory Hurdles
- Tax Implications: Understanding the tax implications of investing in an international FoF, including capital gains tax and withholding taxes, can be complicated and subject to changes in tax laws.
- Regulatory Changes: Changes in investment regulations, both in India and in the countries where the underlying funds invest, can impact the performance and attractiveness of these funds.
Limited Control
- Lack of Direct Influence: Investors in passive funds India like international FoFs have limited control over the underlying investments and the decisions made by the fund managers. This can be a disadvantage, especially if the fund manager’s investment strategy changes or underperforms.
It is therefore crucial to conduct thorough research and consider these limitations before investing in an international Fund of Funds.
Wrapping Up
In conclusion, while international FoFs could offer a convenient way to diversify your portfolio and gain exposure to international markets, they come with inherent complexities and costs. Investors should carefully weigh the benefits against these limitations. It’s crucial to conduct thorough research, understand the underlying funds, and consider factors like fees, currency fluctuations, and regulatory risks. Learning about them extensively before investing can help navigate the complexities and make informed investment decisions aligned with your risk appetite and long-term financial goals.
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