DISADVANTAGES OF FUND OF FUNDS SCHEME :

However, just like any other investment, fund of funds is not free from shortcomings. Few of the disadvantages are specified below.

Additional Fees

The more diversified the fund is, the greater the likelihood that the investor will incur an incentive fee on one or more of the constituent managers, regardless of overall FoF performance.

Associated Risks

Risks associated with all the underlying funds get added at this level. Following are the type of risks associated with fund of funds scheme.

Management Risks

Every fund manager has a particular style of diversification. This diversification style will be in perfect correlation with the number of managers involved. The views of a manager may be altogether different from the market.

Operational Risks

Due diligence of a scheme in itself gives rise to operational risks. Continuous monitoring is required for knowing about performance of the funds, any possibility of a fraud and to know about the investment style of the funds and any desirable or undesirable changes in it.

Qualitative Risks

These include risks associated with the management environment of the fund such as organizational structure, infrastructure, investment process, operational issues etc.

Regulations in India

The fund of funds scheme was introduced in the Indian market by making suitable amendments in SEBI (Mutual Funds) (Amendment) Regulations, 2003.