Financial planners, however, point out that they come at a higher cost and are treated as debt products for taxation, which means investors should come with a time horizon greater than three years.
An FoF manages money by investing in direct plans of other equity mutual funds. Some funds deploy it only in their own schemes, which could be actively managed or ETFs, while a few use a mix of other fund house schemes along with their own products.
“The advantage of an FoF is that an expert or some objective methodology is being used by the fund house for allocating the funds in other mutual funds schemes and being managed actively,” said Anurag Garg, founder of Nivesh.com, a mutual fund investment platform. It is useful for first-time investors who cannot find a financial advisor or investors who want just 1-2 schemes in their portfolio with a long-term objective.
“FoF offers the convenience of diversifying across multiple schemes using just one scheme,” said Dev Ashish, a Sebi-registered Investment Advisor.
Among the available schemes in the market, ICICI Prudential Equity FoF and Quantum Equity FoF invest in actively managed schemes of other fund houses, while Mirae Asset Equity Allocator FoF and Nippon India Passive Flexi Cap FoF and Axis Equity ETF FoF invest in passively managed schemes. “The FoF will have a curated portfolio of funds that consists of schemes that enable diversification with the highest conviction,” said Chintan Haria, head of investment strategy at ICICI Prudential AMC.
ICICI Prudential India Equity FoF has a mix of its own schemes as well as those from other fund houses, with the top three schemes being Quantum Long Term Value Fund, Invesco Contra and ICICI Pru Pharma & Healthcare fund.
