Fund of Funds Compare

Additional Useful Information

• An investor can buy “Units” of these mutual funds. These units can be purchased at a price which is called the “Net Asset Value or NAV”. The NAV of these funds keeps changing daily depending upon the changes in the stock prices of the companies that are held by them.

• The investor can sell these units anytime at the NAV price prevailing on the day of the sale.

• Total Purchase Amount	=	Number of Units X NAV as on the day of purchase
  Total Sale Amount	=	Number of Units X NAV as on the day of sale
  Total Gain	=	Total Sale Amount – Total Purchase Amount

• The fund house which issues a Fund of Fund may offer two options to select from –
• IDCW Option – In this option, growth in the mutual fund value is distributed back to the investor’s bank account in the form of periodic payouts called “Dividends”. This payout could be monthly or quarterly.
• Growth Option – In this option, growth in the mutual fund value is invested back in the fund for further growth. The investor’s gains are in the form of higher NAV price of the units of the fund.

• If an investor buys units in a Fund of Fund and sells them within a certain short period of time, then the fund house may charge the investor, certain nominal fees, at the time of the sale. These charges are the “Exit Load”. This period is typically less than 1 year but varies from fund to fund. Typical exit loads can vary from 0 to 1% of the sale amount.

• Fund of Funds are considered a good investment option over the long term (more than 5 years).

Returns *

• Fund of Funds do not guarantee any returns. They are subject to market risks.

• If Fund of Funds are held over a 5-year period, they could generate returns ranging from 4% to 27.5% per year.

Risk Level

• Fund of Funds are categorized as medium to high-risk investments since they invest in the equity stock market.

• However, they are less risky as compared to any equity mutual funds and other hybrid mutual funds since they invest in debt instruments.

• Since Fund of Funds invest in ETFs, the risk also depends on the index being tracked. For example, a small cap ETF will be riskier than a large cap ETF.

Liquidity

• When an investor sells (or redeems) units of these funds, the fund house will pay the sale amount to the investor in 2 working days (T+2).

Interesting Facts

• Fund of Funds have two sets of costs:
• The costs of the schemes they invest in.
• The costs of the Fund of Funds itself.

• Fund of Funds is different from traditional mutual funds because they invest in a mix of mutual funds which includes equity, debt, and international funds, instead of directly investing in individual stocks or bonds.

• Fund of Funds can be customized to suit specific investor preferences. A Fund of Funds can focus on a particular asset class (such as health sectors or commodities) or geographic region.

Tax Implications

• According to Section 112A of the Income Tax Act, a Fund of Funds will be treated as an Equity Oriented Fund if:
• At least 90% of the Fund of Fund’s total proceeds are invested in units of another Equity Oriented Fund.
• The Equity Oriented Fund itself invests at least 90% of its total proceeds in equity shares of domestic companies listed on a recognized stock exchange.

• When investors sell their Fund of Fund units, the difference between the Sale Amount and Purchase Amount is typically called “Capital Gain” or “Capital Loss” (if sale amount is lesser than the purchase amount).

• Debt Oriented Fund Taxation
• In the case of Capital Gain, this amount is to be added to the taxable income of the investor and taxes are required to be paid based on the applicable tax slab.

• Equity Oriented Fund Taxation -
• The tax that the investor must pay on Capital Gain is –
• Situation 1 – If the Fund of Funds are sold within a period of 1 years from investment, the Capital Gains earned (called Short Term Capital Gains) are taxed at 20% of the gain.
• Situation 2 - If the Fund of Funds are sold after a period of 2 years from investment, the Capital Gains earned (called Long Term Capital Gains) are taxed at 12.5% of the gain.

• There is no tax in case of “Capital Loss”.

• Any dividends/payouts received by investors from Fund of Funds are also to be added to their total taxable income and taxes are required to be paid as per the tax slab.

Where To Invest

• https://www.etmoney.com/mutual-funds/featured/best-fund-of-funds-fof/27

• https://www.indmoney.com/mutual-funds/best-fund-of-funds