A mutual fund which invests in other mutual funds called fund of funds. Fund of Funds also referred to as a multi-manager investment. These mutual funds invest in debt or equity as per your investment objective. In 1962 Bernie Cornfeld has created the original fund of funds, but it went bankrupt after it was looted by Robert Vesco. The Fund of Funds which is available in India invests in the same fund house from where they belong.

The most important thing about funds of funds is it offers tax friendly rebalancing in your portfolio. Mostly small investors should invest in funds of funds. This fund gives you good exposure to high risk. This fund allocates in a variety of categories like stocks, bonds, and other securities. Diversification of this fund helps you to reduce the risk to a certain extent.

There are so many Fund of Funds are available in the market they are-

• Asset Allocation Funds

Mutual Funds which invest in various asset classes called asset allocation fund. These assets range from debt-oriented, equity-oriented or even other asset classes like gold, other metals and commodities. 

• Gold Funds

These kinds of funds invest in gold. It can be the physical form of the gold or stock or gold mining companies.

• International Fund of Funds

International Funds are invests in international companies stocks.

• Multi-Manager Funds of Funds

Multi managed fund is one fund which is managed by many professionals but it is a single portfolio.

Advantages of Funds of Funds

• Tax Benefits– There are some tax benefits in funds of funds if you want to rebalance your assets there will be no tax payable on capital gains for this internal transaction. Funds of Funds are re-balanced to maintain a said allocation between debt and equity there is no tax on capital gains.
• Handling- There is only one NAV and just one folio which also makes it easier.
• Professionally Managed- Funds of Funds are managed by experienced professionals.
• Portfolio Managers– Funds of funds checked and verified there managers so you can be assured that your portfolio is managing by experienced professionals.
• Invest with limited capital- It also help people with limited capital. As their capital is diversified in so many assets. Otherwise, it is too hard to invest individually.

Top 5 Funds in India