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The FoFs' Advantage

Kotak Equity FoFs has outperformed its core equity fund, Kotak 30

Kotak Equity Fund of Funds (FoFs), India's only FoFs that invests in other AMCs' funds, seems to be having a good portfolio to hold on. Since two months of its launch, Kotak Equity FoFs has gained 11.2 per cent. Had you invested in the same AMC's core equity fund - Kotak 30 - your investment would have grown by 8.8 per cent. That's the beauty of FoFs. It not only keep your investments spread across top performing funds but also provide the much-needed diversification and sometimes better returns as well, as is the case now. Thanks to the dual fund management.

Kotak Equity FoFs' investment in Kotak 30 fund is limited to 25 per cent and the rest can be invested in other top performing funds (see table for top-five holdings). The fund has so far been able to abide by its investment objective of maintaining a large-cap tilted portfolio - 60 per cent in to large-caps and the rest into mid-caps. And since its investments are spread over seven equity funds, no single stock accounted for over 3.5 per cent of the fund's overall portfolio. What a diversification!

Kotak Equity FoFs: Top-5 Holdings
Funds  % of net assets
Kotak 30 24.34
Tata Pure Equity 16.52
Franklin India Bluechip  16.46
HSBC Equity 16.37
Tata Equity Opportunities 8.27
As on September 30, 2004
Those apart, the biggest advantage of any FoFs is the tax benefit as it does not have to pay capital gains tax on buying and selling funds. Thus, tax efficiency on account of rebalancing is higher than if one follow a do-it-yourself approach. Currently, the FoFs from Templeton, Birla, Prudential ICICI and Standard Chartered invest in their own schemes only. However, Prudential ICICI is waiting for SEBI's approval for its Freedom FoFs that has the mandate of investing in other AMC's funds as well. Once investors realise the advantages of FoFs, we expect more such fund launches in times to come.