Mastering Fund Of Funds Investing: Here Are The Top 5 Picks

Imagine you’re a busy professional with limited time for research. You want to invest in mutual funds but the sheer number of options can be overwhelming. This is where FOFs come in.

A FOF is a mutual fund that invests in other mutual funds. So, instead of picking individual stocks or bonds, the fund manager does the homework for you by selecting other funds that align with your investment goals and risk tolerance. This saves you time and effort and provides instant diversification across asset classes and investment styles.

Advantages of FOFs

• Diversification: As mentioned earlier, FOFs offer instant diversification across different asset classes and investment styles. This helps spread your risk and reduces the volatility of your portfolio.
• Professional Management: FOFs are managed by experienced fund managers who have expertise in selecting and monitoring underlying funds. This gives you access to their knowledge and experience without having to do the research yourself.
• Convenience: FOFs are a convenient way to invest in multiple funds with a single investment. This saves you time and effort and makes it easier to manage your portfolio.

Disadvantages of FOFs

• Fees: FOFs typically charge two layers of fees – their own expense ratio and the expense ratios of the underlying funds. This can eat into your returns compared to directly investing in individual funds.
• Less Control: With FOFs, you don’t have direct control over the underlying investments. You’re relying on the fund manager’s expertise to make good choices.
• Limited Choice: FOFs typically have a limited number of underlying funds, which may not offer the same level of choice as investing in individual funds.

Best FOFs based on past returns (as of February 19, 2024):

The table provided shows the current value of a Rs 10,000 monthly SIP for 5 years in five different FOFs.

ICICI Prudential Thematic Advantage Fund

This FOF has delivered the highest returns over 5 years (26.27% p.a.), but it also has the highest expense ratio (0.48%). It’s suitable for investors with an aggressive risk appetite who are comfortable with sector-specific themes.

ICICI Prudential Passive Strategy Fund

This FOF offers a good balance of returns (22.06% p.a.) and expense ratio (0.13%). It’s suitable for investors who want exposure to the Indian large-cap market without actively managing risk.

Aditya Birla Sun Life Financial Planning Aggressive Plan

This FOF has a slightly lower expense ratio (0.35%) than the Thematic Advantage Fund, but it has also delivered lower returns (19.36% p.a.). It’s suitable for investors with a moderately aggressive risk appetite.

Aditya Birla Sun Life Asset Allocator

This FOF offers a more balanced approach with a mix of equity and debt funds. It has delivered moderate returns (18.09% p.a.) and has a slightly lower expense ratio (0.31%) than the Aggressive Plan. It’s suitable for investors with a moderate risk appetite.

ICICI Prudential Asset Allocator Fund

This FOF has the lowest expense ratio (0.23%) but also the lowest returns (16.70% p.a.) among the five. It’s suitable for conservative investors who prioritize capital protection over high returns.

Choosing the right FOF depends on your individual investment goals, risk tolerance, and time horizon. It is important to do your research and compare different FOFs before you invest. Consider factors such as the FOF’s investment objective, performance history, expense ratio, and underlying funds.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.