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Fund of Funds UPSC NOTE

 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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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Fund of Funds UPSC NOTE
Fund of Funds UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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