Why in News
SIDBI Chairman S. Ramann on Friday said the Fund of Funds for Start-ups (FFS) has committed ₹9,500 crore for the promotion of new ventures in the country.
FFS facilitates funding needs for start-ups through participation in the capital of SEBI-registered Alternative Investment Funds (AIFs).
The commitment of ₹9,500 crore has led to more than 100 AIFs raising ₹56,000 crore more, the SIDBI Chairman said at the TiEcon Delhi 2024 conference here.
What is Funds of Funds?
A fund of funds (FOF) is essentially an investment vehicle that pools money from investors and then uses those funds to invest in other mutual funds, hedge funds, or a combination of both.
Think of it like a basket holding other baskets, each filled with different fruits (investments).
Here's a breakdown of how FOFs work:
Investment Strategy: FOFs don't directly invest in stocks, bonds, or other individual securities. Instead, they hold units (shares) of other funds.
Benefits of Diversification: A key advantage of FOFs is diversification.
By spreading your investment across multiple underlying funds, you aim to reduce overall risk.
Even if one fund performs poorly, the others can help balance it out.
Professional Management: FOFs are managed by professional fund managers who select the underlying funds based on the FOF's investment objectives and risk tolerance.
This saves you the time and effort of researching and choosing individual funds.
Types of FOFs: There are different types of FOFs available, each catering to specific investment goals.
Some FOFs may focus on a particular asset class (like stocks or bonds), geographic region, or investment style.
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