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Fund of Fund

Fund of funds refer to a mutual fund that invests in other mutual funds. It is sometimes called as multi-management. It is a situation where one mutual fund invests in other hedge funds. In this kind of fund, the capital is brought together for investing money in equity, commodities or currencies etc

Many investors allot assets for fund of funds. Since there is limited partnership, there are lots of advantages for investors. Fund of funds involve risks as well. One disadvantage of fund of fund is double layer of fees. The investor has to pay the fees for the underlying funds and also for the fund managers. This is because usually different managers will be dealing with different funds. Similarly there are layers of fees that should be paid by the investor.

The investment in fund of funds enables an investor to allocate his assets. Transparency is also important in fund of funds. Before investing, the individual managers reputation, background etc should be analysed.

More Glossary Terms Explained here


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