Is it worthy to invest in fund of funds (FOF)?

Fund of funds are the mutual funds that invest the pooled corpus in another mutual fund or a variety of mutual funds. A FOF invests in mutual funds that have different underlying portfolio instead of investing directly in stocks, bonds and other securities.

Following are the major advantages of FOF

• It allows investors to invest in a large number of funds with a single investment
• Through FOF, one can also invest in the schemes that no longer allows new investment
• It can diversify the portfolio
• It can allow investing in overseas mutual funds in which we cannot invest directly

FOF Mutual Funds also have the following disadvantages

• Investors have to pay extra expenses
• Due to over-diversification, the returns might get reduced
• It is difficult to analyse the FOF as various mutual funds are present in the portfolio

Fund of funds is a good option if you want to invest in overseas fund. FOF is mainly of two types namely domestic and overseas. The overseas FOF invests in international mutual funds and gives exposure to small scale investors who are unable to invest directly in those mutual funds. This can diversify the portfolio and act as a hedge against volatility.