What is Fund of Funds Investment? How is it different from the Government’s FFS?

In the standard terms, a fund of funds (FOF) is an investment strategy which “funds” other funds. In other words, rather than investing in securities, bonds, stocks, etc. directly, you invest in portfolios that have invested in the same.

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FOF Features and Advantages

The main objective of FOF is to invest in a variety of funds bundled into one which helps to achieve a high level of diversification.

FOF investments are great for small investors who are risk averse but want to enjoy broad exposure in their investments. These are also more favorable over individual investments which are often difficult to access, especially with limited capital.

A FOF can be two types:

• Fettered: Investments in portfolios that are managed by a single investment company
• Unfettered: Investments in external funds managed by other fund managers from different companies

Fund of Funds for Supporting Start-ups in India

As part of the Start Up India Action Plan, the union cabinet approved the Fund of Funds for Startups (FFS) in association with the Small Industries Development Bank of India (SIDBI) to offer various types of Alternative Investment Funds (AIF) for the startups.

The initial corpus allotted under FFS was Rs. 10,000 crores which shall be disbursed over multiple Finance Commission cycles. Around Rs. 500 crores were provided during FY16 and then Rs. 600 crores during FY17.

The Department of Industrial Policy and Promotion (DIPP) is to play a key role in making provisions with the Gross Budgetary Support by monitoring the performance of the startup industry that receives the funding.

FFS aims at creating employment for 18 lakh individuals in the country through startups. However, as per the latest data with the government, only 75 startups have received funding via 17 AIFs so far.