Fund of Funds - A smart way of investing in mutual funds   Jun 23, 2009

Fund of Funds offer investors a unique and excellent investment proposition. These are mutual fund schemes that invest in the schemes of other mutual funds. That means; it takes the concept of mutual fund investing to another level. While mutual funds invest in stocks of various companies, FoFs invests in the schemes of their own fund house or a third party fund house. Now let us understand what makes FoFs a smart way of investing in mutual funds.

Fund of Funds stands out
The Indian mutual fund industry has grown manifold in the last 5-7 years. In March 2003, the asset under management of the mutual fund industry was around Rs 794.64 bn. Now it has shot up to Rs 6,644.50 bn (as on May 2009). Not only in terms of size, but also in terms of the variety of mutual fund schemes on offer, the growth has been tremendous. While having a variety of schemes provides investors more options to choose from, it also has its own drawbacks.

Consider this; there are 38 fund houses at present. These fund houses offer approximately 277 equity schemes. Of these equity schemes, there are around 193-diversified equity schemes; 55-sector/thematic schemes and 29-index schemes. Combining all, there are about 652 plans/options. This makes the investment decision complex. The plethora of schemes launched by all mutual funds makes the choice extremely tricky.

The myriad schemes and plans/options make the investment decision even more difficult for investors. Hence, the chances of selecting the wrong funds also increases. This highlights that investors require expert advice for selecting good mutual fund schemes. And this is where FoFs comes to their rescue.

Like a mutual fund manager specialises in selecting stocks, a FoF manager specialises in selecting the right mutual fund scheme for his fund. Hence, the decision of investing or redeeming a scheme lies with the fund manager. Hence what investors get at the end is a portfolio of some of the best mutual fund schemes in the industry.

However, it should be well understood that not all FoF schemes will offer an attractive investment proposition. Investors are best placed to benefit if they are invested in a well-managed FoFs scheme. Now one question that would pop up in your minds at this juncture is – How to select a well-managed FoFs scheme? The answer to this question is not far to seek. You must consider investing in Quantum Equity Fund of Funds.

Quantum Equity Fund of Funds
(NFO Opens – June 26, 2009; NFO Closes – July 13, 2009)

Quantum Equity Fund of Funds is a equity-oriented FoFs scheme from Quantum Mutual Fund. The fund offers investors a unique and attractive investment proposition. The fund aims at investing only in diversified equity mutual fund schemes of third party fund houses from a long-term perspective. That means:

a) It will not invest in any sector/thematic funds, index funds, tax-saving funds (ELSS), balanced funds or any other type of funds except for diversified equity schemes.

b) It will not invest in any scheme from Quantum Mutual Fund.

c) It will not invest in mutual fund schemes, which have a track record of less than 3 years.

Research by PersonalFN
PersonalFN provides the research support for Quantum Equity Fund of Funds. Hence, the investments will be made based on the recommendations provided by PersonalFN. For selecting the schemes, PersonalFN will follow a proprietary quantitative and qualitative criterion. PersonalFN has been in the business of researching mutual fund schemes for almost a decade now. It is known to provide personalized, unbiased and honest advice to investors pertaining to their investments. The research process followed by PersonalFN for Quantum Equity Fund of Funds is very comprehensive, and hence one of the highlights of the fund.

Why Quantum Equity Fund of Funds?
By investing in Quantum Equity Fund of Funds, investors get an opportunity to invest in some of the best mutual fund schemes in the industry.

Quantum Equity Fund of Funds will follow a comprehensive research methodology, developed by PersonalFN, for selecting the schemes. The research methodology comprises a nice blend of a quantitative and qualitative analysis.

Quantitative analysis – Under quantitative analysis, the focus will be on the performance of the schemes across time frames and market cycles. In addition, the schemes will be evaluated based on the stock concentration levels in their portfolios, and also on the basis of risk-adjusted returns.

Qualitative analysis – The qualitative parameters will largely judge the fund on parameters like, amongst others, fund house’s investment systems and processes, the performance of the scheme across market cycles, consistency in characteristics of its portfolio.

Funds that emerge as the top performers on both the above parameters shall form part of the final portfolio. The Fund will also constantly review its investments and carry out necessary re-balancing to ensure superior consistent performance. Hence, the research methodology will ensure that the schemes that eventually form the part of the portfolio are the finest among the lot.

Benefits of the Quantum Equity Fund of Funds
There are numerous benefits of investing in the Quantum Equity Fund of Funds.

1) Investors no longer have to scout for which fund house to invest in.

2) They no longer have to spare time for selecting the right scheme from a host of schemes.

3) Given the research for selecting the schemes is done by PersonalFN, investors will get an opportunity to invest in a blend of the best performing funds.

4) They are also well-placed to benefit from the proven research process and risk control measures. These are essential for making investment in any mutual fund schemes.

5) They will get the benefit of diversification across mutual fund schemes as well as fund management styles.

6) They will have a portfolio which is not biased towards a particular fund house and scheme.

7) This will aid them in accumulating all their equity mutual fund holdings and get consolidated report.

What should investors do?
As mentioned earlier, Quantum Equity Fund of Funds will invest in mutual fund schemes recommended by PersonalFN. This provides investors an opportunity to invest in some of the best mutual fund schemes in the industry and benefit from the same. At PersonalFN, we have always recommended investors to invest in mutual fund schemes, which have the potential to add value to their investment portfolio. The Quantum Equity Fund of Funds is one such fund. Hence, investors who are looking forward to investing in well-managed and established mutual fund schemes must invest in the Quantum Equity Fund of Funds.

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