What is the difference between feeder fund and fund of funds?
A feeder fund is a type of investment fund that does the majority of its investments through a master fund, using a master feeder relationship. It is similar to a strategy called fund of funds, but the main difference is that the master fund does all the investing.
A feeder fund is an investment vehicle that allows investors to pool their money and invest in a larger target fund. This target fund is used to invest in funds that are typically not available and accessible to retail investors.
A 'Fund Of Funds' (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. An FOF Scheme of a primarily invests in the units of another Mutual Fund scheme. This type of investing is often referred to as multi-manager investment.
One of the most common examples of a fund of funds is a target date mutual fund. Target date funds allocate investors' capital based on their expected retirement date. For example, Vanguard's target date mutual funds pool investors' money and invest it into four other Vanguard funds.
Investors put capital into their respective feeder funds, which ultimately invest assets into a centralized vehicle known as the master fund. The master fund is responsible for making all portfolio investments and conducting all trading activity. Management and performance fees are paid at the feeder-fund level.
A feeder fund may be an equity or debt mutual fund that pools money from investors and invests it in a master fund. This is one of the most unique investment structures that investors may come across.
Feeder funds are an integral part of the master-feeder structure that is one of the primary investing strategies used by hedge funds. Its purpose is to pool investments from investors in multiple locations in order to increase their investor pool and reduce costs.
Who should invest in Fund of Funds? The Fund of Funds is a good bet for small investors who do not wish to take higher risk. The diversification of funds helps to reduce the risk. This is also a great medium of investment for an investor with small amounts of funds available for investment each month.
A fund of funds (FOF) is an investment product made up of various mutual funds—basically, a mutual fund for mutual funds. They are often used by investors who have smaller investable assets, limited ability to diversify or who are not that experienced in choosing mutual funds.
| Fund Name | Returns Since Inception | Expense Ratio |
|---|---|---|
| Mirae Asset Equity Allocator Fund of Fund | 24.3% | 0.21% |
| Edelweiss US Technology Equity Fund of Fund | 11.60% | 2.37% |
| Axis Global Equity Alpha Fund of Fund | 8.30% | 1.63% |
| Axis Global Innovation Fund of Fund | -14.7% | 1.59% |
What is fund of funds in AIF?
Alternative Investment Fund or AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.
Fund of Funds is a multi-manager investment fund that helps the startups by reducing the risk of investing in bonds, stocks and other types of securities. The fund of funds can be domestic or international.
FoF are taxed just like any other debt mutual fund scheme, even though the fund invests in equity mutual fund schemes. If you withdraw before 3 years of investment, Short Term Capital Gains are added to the taxable income and taxed as per the income tax slab of the investor.
Umbrella Fund. A master-feeder structure allows multiple funds using the same investment strategy to pool their capital and be managed as part of a bigger investment pool. An umbrella fund allows a fund to create compartments such that each sub-fund can provide different investment strategies or rights to investors.
An aggregator is an entity that purchases mortgages from financial institutions and then securitizes them into mortgage-backed securities (MBSs). Aggregators can be the issuing banks of the mortgages or subsidiaries within the financial institutions themselves.
A master fund is an investment fund used for transacting securities when a master-feeder structure is utilized. A master-feeder structure builds on the concept of managing portfolios from a collective investment pool.
A feeder fund only has access to the EU Passport if the master fund has the ability to obtain the EU Passport itself. A feeder AIF is defined as an AIF investing at least 85% of its assets into another AIF (the master AIF).
The master fund pools the capital from both types of feeder funds and invests in different types of securities based on market conditions and agreements with investors. The profits and losses generated by the master fund are shared among the feeder funds according to the amount invested.
Feeder funds allow issuers to offer offshore ETFs without having to buy the underlying shares. This means less administration and, importantly, lower fees. Satrix introduced feeder funds to the South African market with three offshore ETFs in 2017. Other ETF issuers have followed suit since.
Remember, like all other types of investments, feeder funds are not immune to risk. Also, not all UITFs have a feeder fund, so you can only choose from the ones that do. As always, the best approach is to seek professional financial and tax advice.
What is a mother fund?
A "manager of managers fund" (MoM fund) is an investment fund that uses an investment strategy of directly selecting different investment managers and gives them mandate to make investment decisions.
In many cases, blockers are used to insulate foreign and tax-exempt investors from direct tax liability in the fund's home jurisdiction. Blockers are generally intermediate entities that receive capital contributions from a feeder fund and then contribute those funds to a master fund.
1. Diversification. Fund of funds target various Best Performing Mutual Funds in the market, each specialising in a particular asset or sector of fund. This ensures gains through diversification, as both returns and risks are optimised due to underlying portfolio variety.
Liquid Funds:Considered to be the safest type of mutual fund, liquid funds invest in liquid instruments with short maturity i.e. less than 91 days. They provide 1% or 2% higher returns than savings account with almost no risk.
These mutual funds can be used to invest in both in domestic as well as international funds, as per the discretion of the asset management company.
What Are the Downsides? That said, there are some serious downsides to the private equity fund of funds model. The most serious one is the double fees. In addition to the management fee and carried interest charged by the PE firms (traditionally 2% and 20%), a PE fund of funds also charges management fees and carry.
Generally, FOF managers charge a 0.5% to 1.0% annual management fee, with some taking a minor portion of the carried interest (“carry”) in the 5.0% to 10.0% range. The FOF fees are placed on top of the fees charged by the underlying active fund managers that typically charge fees in the following ranges.
| Fund Name | 3-year Return (%)* | 5-year Return (%)* |
|---|---|---|
| Tata Digital India Fund Direct-Growth | 32.30% | 29.68% |
| ICICI Prudential Technology Direct Plan-Growth | 34.21% | 28.87% |
| Aditya Birla Sun Life Digital India Fund Direct-Growth | 33.37% | 27.65% |
| SBI Technology Opportunities Fund Direct-Growth | 29.97% | 26.99% |
1) Axis Bluechip Fund Direct-Growth
Axis Bluechip Fund Direct Plan-Growth is an Equity Mutual Fund Scheme launched by Axis Mutual Fund and is the Highest Return Mutual Fund in Last 5 Years.
- Parag Parikh Tax Saver Fund Direct-G.
- Quant Tax Plan Direct-G.
- Parag Parikh Tax Saver Fund Reg-G.
- Quant Tax Plan-G.
- Canara Robeco Equity Tax Saver Direct-G.
- Mirae Asset Tax Saver Direct-G.
- Canara Robeco Equity Tax Saver Reg-G.
- Mirae Asset Tax Saver Reg-G.
Is feeder fund a good investment?
Feeder funds are a good option when you're on a tight budget but still want to get started with investing. With these investments, even higher-priced funds are within reach, as long as they have a feeder fund. Adding to their affordability, feeder funds also usually have lower fees than UITFs.
What is the difference between a Feeder Fund and a regular UITF? A Feeder Fund invests in a Target Fund such as the CIS, while a regular UITF invests directly in investment securities such as stocks and bonds.
2 : one that eats or takes nourishment especially : an animal being fattened or one suitable for fattening. 3a : one that supplies, replenishes, or connects.
Feeder funds allow issuers to offer offshore ETFs without having to buy the underlying shares. This means less administration and, importantly, lower fees. Satrix introduced feeder funds to the South African market with three offshore ETFs in 2017. Other ETF issuers have followed suit since.
