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Cloning Investments

What are clone funds?

Now, if you are one of those who doesn’t have the requisite time to scan investor portfolios and conduct basic checks on the company’s fundamentals here is something that might interest you- Clone Funds.

 

A clone fund is similar to a mutual fund, that tries to replicate the performance of another successful fund. The clone fund can in turn invest in multiple funds/strategies. 


There are numerous advantages of investing in a clone fund:

 

1.Access to due diligence and expertise - Clone funds have experienced fund managers who conduct proper due diligence & risk management before investing in that company. Hence, investors are assured about the safekeep of their investments.

 

2.Diversification - Instead of investing in a particular fund, several clone funds invest in multiple strategies, which make them less prone to failure.

 

3.Less time-consuming – As discussed earlier, this instrument is suitable for those who are short on time to keep track of their investments. Well, this doesn’t imply that cloning funds are a buy and forget strategy either.

 

4.Lower management fees – This typically depends on the fund you have chosen but as a norm passive funds charge low management fees.

 

There are some disadvantages also:

 

1.Double layer of fees – An investor, who invests in clone funds, has to pay a double layer of fees. This is because the clone fund will charge management fees of let's say 1% and the fund in which the clone fund shall invest will charge a similar amount that takes the total fees paid to around 2%.

 

2.Time lag – Most of the funds do not release their holdings data before the end of a month or quarter, which means the price at which the clone fund shall buy or sell, will not exactly match the fund that they will replicate.

 

We have completed our journey of learning everything about cloning investment. To give you an idea of how to apply cloning by yourself. Coming units, we will discuss some case studies. 

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Units 6/8