IUP Publications Online
Home About IUP Magazines Journals Books Archives
     
Recommend    |    Subscriber Services    |    Feedback    |     Subscribe Online
 
The IUP Journal of Management Research :
Value Addition Through Fund of Funds (FoFs): A Comparison Between FoFs and Individual Mutual Funds in India
:
:
:
:
:
:
:
:
:
 
 
 
 
 
 
 

The study attempts to evaluate the performance of Fund of Funds (FoFs) in terms of value addition over ordinary mutual funds in India. The performance of FoFs and individual mutual funds are compared with the risk-free returns as well as the benchmark index (BSC 100), which is taken as the proxy for the market returns. Samples were collected from the AMFI websites and respective AMC websites fr om April 1, 2007 to March 31, 2014 and the returns were calculated from the respective scheme’s NAV price. The methods used in the study are risk adjusted tools of Sharpe ratio, Treynor ratio and Jensen Alpha. An analysis performed on the sample of equity-oriented fund of mutual funds showed that all the FoFs and individual mutual funds under study earned positive returns in excess of the risk-free rate of return offered by 91 days Treasury bill. The comparison between rates of return of the benchmark index and the sample of FoFs indicated that a majority of the equity FoFs have overperformed the benchmark. Such results might have been the result of well-designed diversification strategies in the portfolios. The results reveal that the performance of FoFs posted positive Sharpe, Treynor and Jensen Alpha. The better performance of FoFs strongly explained the added value of FOF in comparison to individual mutual funds in India.

 
 

Mutual fund is a single, large, professionally-managed investment vehicle that assembles the funds of many individual investors having similar investment objectives and invested accordingly. Whereas Fund of Funds (FoFs) is a typical investment alternative which invests in more than two mutual funds. FoFs as financial instruments started getting traded in the American market since the 1980s. However, in India, SEBI permitted fund-houses to launch FoFs only in the middle of 2003. The first fund of mutual funds in India is FT India Dynamic PE Ratio FoFs launched by Franklin Templeton mutual funds in October 2003. Currently, 44 AMCs and more than 50 schemes are in operation. The fast growth of the FoF industry owes considerably to the high financial innovation that characterizes this market. FoFs offer an opportunity for greater diversification, compared to other instruments. Investing via FoFs provides exposure to the investor in a well- diversified set of mutual funds adopting different strategies. A majority of the FoFs have a diversified approach whereby investment is made in multiple mutual fund strategies, although there are FoFs which are strategy-specific.

 
 

Management Research Journal,Performance of Fund of Funds (FoFs),Significance of the Study,Risk Measure.