Fund of funds (FoF) concept~ A fund manager uses his expertise to allocate investments across existing schemes to suit an investment objective. This is intended to address the need for quality advisory and offer investors a solution that is made up of the best-of-breed funds.
Now should you invest in FoF because , it is difficult to choose and keep track of best funds?
Choosing good funds is not as difficult as picking stocks. Enough information is available on web to make an informed decision. It also doubles up the cost of managing your fund to some extent.
The main deterrent is-
Tax treatment ~ All FoFs are taxed as debt funds even if the underlying allocation is across equity schemes. ( as per current Income tax law -11/2007)
Yes, your FoF is taxed as a debt fund even if it allocates all its portfolio to equity funds alone.
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