Here are some examples of FoFs in India: Franklin Dynamic Allocation FoF, Motilal Oswal Nasdaq 100 FoF, ABSL Financial Planning FoF, Kotak Asset Allocator, Quatum Equity FoF, among others.
Some of you must be wondering why would a mutual fund scheme invest in other schemes? The answer is simple: when the there are good mutual fund schemes that have already proven their worth with consistent performance, what is the point of investing directly in equity and stock. Why not invest these schemes with a proven track record? That is the basic logic behind these schemes.
Two, FoFs were treated as non-equity schemes for taxation. This was major drawback at that time when equity mutual funds used to enjoy zero long-term capital gains tax.
Most investors asked the fund manager a simple question: why would I pay tax simply because I am using FoF route. Though Amfi has been making representations to the ministry year after year, these schemes continued to be taxed like debt schemes. This is mainly because equity schemes qualify for LTCG taxation only if they invest at least 65% of their corpus in Indian equities; this is the reason why even international funds that invest overseas equities also do not qualify for equity taxation.
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