Can I invest?
If you do not have the time or the knowledge to choose the Best Mutual Funds for yourself, then FoF, is the right option for you. But, this type of fund does not provide you the flexibility to choose your funds and the allocation criteria are also rigid.
Make sure to invest in a fund that is unbiased in its portfolio selection. Such a scheme will invest in the top schemes across different fund houses, reducing the risk for the investors, paving way for a healthy growth in your investments. There will be no point if you are inclined towards opting a home loan or a car loan after a few years, just because your investments were not sufficient to match your finances.
Hybrid FoF schemes that are aligned to the investor’s risk profile are also beneficial. These schemes rebalance your portfolios to match your desired asset allocation.
Tax implication:
The tax benefits which are expected to be higher in equities related investments, are not provided by foFs. They are treated as Debt instruments and are taxed accordingly. Short-term capital gains, earned by selling the fund within one year, are added to the income of the investor and taxed at normal rates. So, if your taxable income is more than Rs 8 lakh a year, you would have to shell out Rs 300 as tax for every Rs 1,000 earned from the scheme (instead of Rs 150 in a regular fund).
The long-term capital gains. income received after being sold after a year, from ordinary equity-oriented funds are tax-free. However, long-term gains from FoFs are taxed at 11.33% without indexation and 22.66% with indexation.
A sigh of relief:
When an investor switches between individual schemes within one year of investing, he is liable to pay capital gains as well as exit load. However, in case of switching or rebalancing by the fund manager of a FoF, there is neither any tax implication nor any exit load.
One stop investing need:
If you are a new investor, this Fund will be the right choice, since FoF takes care of this problem by making the decision for you. You don’t have to analyse individual schemes and find which ones suit your needs and goals. You also don’t need to track the performance of the schemes in your portfolio. If the fund manager thinks a certain scheme has not been doing well, he will exit from the fund.