Monday, May 2, 2011

Fund of Funds

A fund of funds (FoF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investment is also known as multi-manager investment. There are different types of 'fund of funds', each investing in a different type of collective investment scheme, for  example 'mutual fund' FoF, hedge fund FoF, private equity FoF or investment trust FoF. Investing in a collective investment scheme may increase diversity compared to a small investor holding a smaller range of securities directly. A FoF manager will try to select the best performing funds to invest in based upon the managers past performance and other factors. If the FoF manager is skillful, this additional level of selection can provide greater stability and take on some of the risk relating to the decisions of a single manager. As in all other areas of investing, there are no guarantees for regular returns. As a fund of funds invests in the scheme of other funds, it provides a greater degree of diversification. Instead of investing in different stocks of mutual funds and keeping records of all of them, it is much easier to invest and track only one fund which in turn invests in other mutual funds.

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