Fund of Funds (FoF)

 Hello Friends 

One very interesting Topic for you  Retail investor must invest in this who want to

 Diversify their amount into different  Asset class 

A ‘Fund Of Funds’ (FOF) is an investment strategy of holding a portfolio of other

Investment funds rather than investing directly in stocks, bonds or other securities. An FOF

Scheme of a primarily invests in the units of another Mutual Fund scheme

This type of investing is often referred to as multi-manager investment

These schemes offer the investor an opportunity to diversify risk by spreading investments

across multiple funds. The underlying investments for a FoF are the units of other mutual

fund schemes either from the same mutual fund or other mutual fund houses.

Experts believe fund of funds are generally better suited for smaller investors that want to

gain access to a range of different asset classes or for those whose advisers do not have

the expertise to make single manager recommendations Under current Income Tax regime

in India, a FOF is treated as a non-Equity fund and consequently taxed accordingly

In other words, even though a FOF may be investing in equity oriented funds, the FOF itself

is not regarded as an equity oriented fund, and consequently, the tax benefits currently

Available to an equity fund are not available to an FOF. Consequently, in case of FOFs

 Investing in equity securities of domestic companies via EOFs, there is dual levy of

Dividend Distribution Tax (DDT)  the domestic companies distribute dividends to their

Shareholders and again, when the FOF distributes the dividends to its unit-holders

Some examples of FoFs in India

Franklin Dynamic Allocation FoF

Motilal Oswal Nasdaq 100 FoF

ABSL Financial Planning FoF,

Kotak Asset Allocator

Quatum Equity FoF

Two, FoFs were treated as non-equity schemes for taxation. This was major drawback at that time when equity Mutul funds  used to enjoy zero long-term capital gains tax.

Most investors asked the fund manager a simple question: why would I pay tax simply because I am using FoF route. Though Amfi has been making representations to the ministry year after year, these schemes continued to be taxed like debt schemes. This is mainly because equity schemes qualify for LTCG taxation only if they invest at least 65% of their corpus in Indian equities; this is the reason why even international funds that invest overseas equities also do not qualify for equity taxation.