Typically, the process of selecting mutual funds to invest in can be cumbersome due to the variety of options and the lack knowledge / research methods. On one end, investors preferring DIY (Do-it-yourself) can do the whole process of shortlisting mutual funds to invest depending on their personal risk profile, goal and time duration. In contrast, investors can choose to simplify the mutual fund selection process by investing in a Fund of Funds Mutual Funds in India.
Achieve portfolio diversification: Many Fund of Funds Mutual Funds help achieve portfolio diversification by investing across assets and across varying mutual fund types and styles, thereby simplifying the process of asset allocation.
Low Minimum Investment: Investors who are low on resources or seeking minimum investment can choose to invest in such a fund. If you were to invest in different funds, it would require additional investment across each of the mutual funds chosen. Also, switching between funds would have tax implications for an investor. In contrast, the switching between funds by a fund manager for the fund of Funds Mutual Fund scheme does not bear any tax on the investor.
Ease of portfolio management: Investors just need to track one NAV and one mutual fund, thereby simplifying the portfolio management process. In short, the investor can take advantage of the fund manager’s expertise to bring changes in the portfolio construction depending on the market conditions.
Post-tax return: Fund of Funds Mutual Funds are taxed like a debt fund where the investments held over 3 years or 36 months are considered as Long Term Capital Gains. The taxation of LTCG gains is 20% with indexation benefit. Indexation adjusts the effect of inflation on long-term capital gains.
Thus, investors who are looking for risk-adjusted returns for the long-term can consider Fund of Funds Mutual Fund that simplifies the process of fund selection and provides portfolio diversification.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.