Understand Fund of Funds

Definition
The fund of funds or FoF is a fund or investment fund that makes use of the investment strategy by holding portfolio of other investment funds than that of directly investing into the shares, bonds and securities.

Advantage of investing into Fund of funds
1. Diversity will increase in a collective investment scheme as to compare to the small investor holding wherein it holds a smaller range of securities.
2. Investing into fund of funds (FoF) will achieve greater diversification.
3. FoF may actively manage your investment with a view to select the best securities.
4. FoF manager may try to select the best performing funds to invest in best performing funds to invest upon the managers past performance and other factors.
5. FoF invests in the scheme of other funds wherein it provides a greater degree of diversification.

Future performance of Fund of Funds
1. Fund of funds are typically higher that that of the traditional investment funds due to its management fees charged by the underlying funds.
2. FoF schemes work under the due diligence of a fund manager.
3. When the FoF reached to a certain level of manager, it will add more flattens return curve and diversifies away.
4. FoF may own the same stock by means of several different funds and it can be difficult to track on the overall holdings.

Quote of the day:
In fund of funds, this type of investing is referred to multi-manager investment. And the FoF has different types, the collective investment scheme, hedge fund, private equity or investment trust.

Best Reading:
What is Exchange-traded Fund
What is Value Fund
What is Regional Mutual Fund
What is Index Fund
What is Sector Fund

Conclusion:
The hedge funds is a fund of funds wherein it invests in a portfolio of different hedge funds in providing broad exposure to the hedge fund industry and to diversify the risks in coordination with a single investment fund. It selects hedge fund manager and constructs portfolios based on the selections. It is also responsible for hiring and firing the managers in the fund.

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Understand Sector Funds

Definition
Sector fund is a fund that could be exchange-traded or closed-end fund that invests on a business of a particular industry or sector. It concentrates on the investment in the single sector in the market.

Advantage of investing into the Sector Fund
1. Sector funds are less diversified; they carry a significant level of volatility and risk.
2. Sector funds can be actively managed.
3. It restricts their investments to a particular segment.

Sector Fund future Performance
1. Sector funds could go on to cash during the sell signals, drawdown are kept to extreme minimums.
2. Sector funds will reduce the exposure to any single industry by being affected by negative news.
3. Past performance is not an indication of the future performance.

Sample of Sector funds where you can invest
1. SBI Magnum Sector Funds Umbrella
2. Fidelity Sector Funds

Quote of the day:
The sector funds could increase the price if there is an increased demand for the product or service offering that is provided by the businesses in which the funds invest. But there could also be heavy losses in this type of fund, in which when there is downturn in the specific sector in which the sector fund invest.

Best Reading:

• What is No-load fund
• What is Exchange-traded fund
• What is Value fund
• What is Regional Mutual fund
• What is Index funds

Conclusion:
The sector funds do not fall on particular categories. Sector fund could be a good way in diversifying the portfolio. Hope you read more of our mutual funds and have a happy reading.

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