Are you looking for passive funds India types on the internet? Skimming through the list of index funds, Exchange Traded Funds (ETFs) and others, you might find a term called “Fund of Funds”.
So, what could this passive funds India type be?
As its name suggests, a Fund of Funds or FoF is a mutual fund that invests in other mutual funds. It is a passive funds India investment strategy that involves investing in other investment funds rather than directly in individual securities like stocks or bonds.
Let us learn more about the structure, benefits, limitations and types of FoFs in this blog:
Structure of Funds of Funds
1. Investment Composition
A FoF pools capital from multiple investors and allocates it across various underlying funds. This could include mutual funds, hedge funds, private equity funds or other investment vehicles.
2. Management
FoFs are typically managed by experienced investment professionals who conduct extensive research and due diligence to select the underlying funds based on factors such as performance history, strategy and risk profile.
3. Portfolio Construction
The FoF manager decides how much capital to allocate to each underlying fund, balancing the overall portfolio to achieve specific investment objectives. This construction can vary based on market conditions and the manager’s outlook.
Benefits of Funds of Funds
1. Diversification
By investing in multiple funds, FoFs spread risk across various asset classes and strategies. This diversification can reduce the impact of poor performance by any single fund. They can provide broad exposure across different asset classes, sectors, and geographic regions, helping to mitigate risk.
2. Expertise Access
Investors gain exposure to a range of professional fund managers and their investment strategies, which might be difficult to access directly.
3. Simplicity and Convenience
For individual investors, managing a diversified portfolio of funds can be complex. FoFs streamline this process, allowing investors to manage their investments through a single vehicle.
4. Reduced Volatility
The diversification and professional management of FoFs can lead to more stable returns compared to investing in individual funds or securities.
5. Variety of Strategies
FoFs can include a mix of traditional and alternative strategies, allowing investors to tailor their risk exposure according to their preferences.
Limitations of FoFs
1. Higher Fees
FoFs generally have higher expense ratios due to the dual layer of fees—fees for the FoF itself and additional fees for the underlying funds.
2. Complexity in Fee Structure
Understanding the total cost of investing in a FoF can be challenging as it requires evaluating the fees of both the FoF and its underlying funds.
3. Performance Variability
The performance of a FoF depends not only on the fund’s management but also on the performance of the underlying funds which can vary widely.
4. Limited Control
The investors in a FoF have to let go of some control over their investment decisions as the FoF manager makes all decisions regarding fund selection and allocation.
Types of Funds of Funds
1. Equity FoFs
These invest primarily in equity mutual funds or equity-focused hedge funds. They may focus on specific sectors, regions, or investment styles.
2. Bond FoFs
These funds primarily invest in fixed-income mutual funds or bond-focused funds, targeting different maturities and credit qualities.
3. Hedge Fund FoFs
These invest exclusively in hedge funds, providing access to a variety of hedge fund strategies while mitigating individual hedge fund risks.
4. Alternative Investment FoFs
These may include a mix of various alternative investments, such as real estate, commodities, and private equity.
5. Target Date FoFs
These funds adjust their asset allocation based on a specific target date, typically associated with a retirement timeline, becoming more conservative as the target date approaches.
Top 10 FoFs in India
Below is the list of top FoFs India based on one-year and three-years returns.
Top FoF India Based on 1-year Return
| Scheme Name | Benchmark | Return 1-Year (%) Regular | Daily AUM (₹ in cr) |
|---|---|---|---|
| Nippon India Next 50 Junior BeES FoF | Nifty Next 50 Total Return Index | 61.16 | 498.55 |
| Mirae Asset NYSE FANG+ ETF FoF | NYSE FANG+ Total Return Index | 57.88 | 1,487.66 |
| ICICI Prudential Bharat 22 FoF | BSE Bharat 22 Total Return Index | 50.78 | 2,095.40 |
| Franklin India Feeder Franklin US Opportunities Fund | Russell 3000 Growth Total Return Index | 48.97 | 3,611.68 |
| Bandhan US Equity FoF | Russel 1000 Growth Total Return Index | 48.53 | 328.24 |
| Mirae Asset Nifty India Manufacturing ETF FoF | Nifty India Manufacturing Total Return Index | 48.47 | 112.28 |
| Mirae Asset Global X Artificial Intelligence & Technology ETF FoF | Indxx Artificial Intelligence & Big Data Index TRI | 45.87 | 315.68 |
| DSP World Gold FoF | FTSE Gold Mines Index | 45.35 | 1,163.99 |
| ICICI Prudential Nifty Alpha Low- Volatility 30 ETF FoF | Nifty Alpha Low Volatility 30 Total Return Index | 45.27 | 776.85 |
| Edelweiss US Technology Equity FoF | Russel 1000 Equal Weighted Technology Index | 43.70 | 2,329.48 |
Source: Accessed through Kuvera| 29/10/2024
Top FoF India Based on 3-year Return
| Scheme Name | Benchmark | Return 3-Year (%) | Daily AUM (₹ in cr) |
|---|---|---|---|
| ICICI Prudential BHARAT 22 FoF | BSE Bharat 22 Total Return Index | 32.48 | 2,095.40 |
| Mirae Asset NYSE FANG+ ETF FoF | NYSE FANG+ Total Return Index | 19.27 | 1,487.66 |
| Nippon India Nifty Next 50 Junior BeES FoF | NIFTY Next 50 Total Return Index | 18.75 | 498.55 |
| ICICI Prudential Nifty Alpha Low - Volatility 30 ETF FoF | Nifty Alpha Low Volatility 30 Total Return Index | 18.27 | 776.85 |
| Kotak Multi Asset Allocator FoF - Dynamic | NIFTY 50 Hybrid Composite debt 50:50 Index - 90% Domestic Price of Gold - 5% MSCI World - 5% | 17.82 | 1,578.92 |
| Nippon India Asset Allocator FoF | CRISIL Hybrid 50+50 Moderate Index - 90% Domestic Price of Gold - 10% | 17.29 | 297.98 |
| Invesco India Gold ETF FoF | Domestic Price of Gold | 16.32 | 94.50 |
| Axis Gold Fund | Domestic Price of Gold | 16.27 | 671.03 |
| SBI Gold Fund | Domestic Price of Gold | 16.26 | 2,436.73 |
| Quantum Gold Savings Fund | Domestic Price of Gold | 16.17 | 141.48 |
Source: Accessed through Kuvera| 29/10/2024
New FoFs Launched in 2024
As of 2024, there have been several new FoFs launched across various sectors, particularly in private equity, venture capital and hedge funds. Some notable ones are listed below:
| Scheme Name | Open Date | Close Date |
|---|---|---|
| Zerodha Gold ETF FoF | 25-10-2024 | 08-11-2024 |
| Groww Gold ETF FoF | 16-10-2024 | 30-10-2024 |
| Mirae Asset Gold ETF FoF | 22-10-2024 | 28-10-2024 |
| Groww Nifty India Defence ETF FoF | 04-10-2024 | 18-10-2024 |
| Groww Nifty EV & New Age Automotive ETF FoF | 07-08-2024 | 14-08-2024 |
| Mirae Asset Nifty 200 Alpha 30 ETF FoF | 22-07-2024 | 22-07-2024 |
| SBI Silver ETF FoF | 05-07-2024 | 11-07-2024 |
| Mirae Asset Nifty MidSmallcap400 Momentum Quality 100 ETF FoF | 24-05-2024 | 31-05-2024 |
| DSP US Treasury FoF | 13-03-2024 | 18-03-2024 |
| Mirae Asset Nifty Smallcap 250 Momentum Quality 100 ETF FoF | 28-02-2024 | 01-03-2024 |
Source: Accessed through Kuvera| 29/10/2024
Wrapping Up
FOFs offer a unique passive funds India investment opportunity, providing investors with a convenient way to diversify across multiple asset classes and fund managers. While they offer the advantage of professional management and diversification, it’s crucial for investors to carefully evaluate the underlying funds, fees, and the fund manager’s expertise. Before investing in an FOF, thorough research and understanding of the investment objectives and risks involved are essential. As with any investment, consulting a financial advisor can help make informed decisions that align with individual financial goals and risk tolerance.
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