What are feeder funds: what makes them different from other funds?

Classroom

oi-Shubham Kumar

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A feeder fund is a mutual fund or a special type of fund-of-funds (FoF) that pools money from investors and invests it in a specific single fund such as a global fund or a master fund. These can be stocks or debt funds. It is one of the more unusual investment formats available to investors.

Mutual funds are a type of mutual fund that invests in other mutual funds. This sets them apart from typical mutual funds, which invest in securities, stocks, and fixed-income securities.

The nurturer-master relationship

Feeder funds are an important aspect of the master-feeder system, which is one of the most common investment techniques in hedge funds. Its goal is to combine contributions from investors across the country to broaden its investor base and lower its costs.

How do feeder funds work?

A feeder fund is an investment vehicle that aggregates cash and invests in a master fund or global funds. The master fund invests in the stock market, manages a portfolio and trades assets. The investments are then managed by an investment adviser. Investors place their money in a feeder fund, which then transfers or invests it into a larger fund called a master fund. Your money will not be invested in any debt or equity instrument by the feeder fund.

The master fund will receive the capital received from the feeder fund. The capital will be invested in a variety of instruments, including equities and debt, by the fund manager. The feeder and master fund has a two-tier structure, which results in lower investment costs for the investor and lower operating costs for the asset management company. Additionally, it provides the master fund with access to a larger pool of liquidity, allowing the fund manager to invest in more securities and earn higher returns.

As mentioned above, a feeder fund is a special type of FOF that invests in an international fund. FoFs are a wonderful method to diversify and modify a portfolio according to changing market cycles. In this case, the need for a feeder fund is due to the fact that investors are not able to invest directly in the global fund while a feeder fund is readily available at the national level as part of the surveillance of the local regulations and local operational mechanisms.

Article first published: Saturday, February 19, 2022, 6:02 p.m. [IST]