A feeder fund may be an equity or debt mutual fund that pools money from investors and invests it in a master fund. This is one of the most unique investment structures that investors may come across.
In this story, we will explain feeder funds in a simple way by explaining how it works, the difference in the master-feeder relationship, and how you can invest in the best feeder fund in India using Cube Wealth.
A feeder fund follows a bottom-up; two-tier structure:
Investors pool their capital into a feeder fund that transfers or invests the capital in a bigger fund known as the master fund. The feeder fund will not invest your money in any debt or equity instrument.
Capital collected from the feeder fund will be deposited into the master fund. The fund manager will invest the capital into various securities like equity and debt.
The two-tier structure between the feeder and master fund leads to lower investment costs for the investor and lower operating costs for the Asset Management Company.
Moreover, it gives the master fund access to a bigger pool of capital that can allow the fund manager to invest in more securities and generate better returns.
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