Explain the following: Fund of Funds Scheme and its classification

Fund of Funds is a mutual fund scheme, which invests in the schemes of same mutual funds or other mutual funds, instead of investing in securities. These funds can invest in equity oriented, debt oriented and liquid schemes or sector specific schemes. Depending on the investment style of the fund managers, fund of funds schemes can be broadly classified into: Sector specific funds: Such type of funds invest in different sectors of the economy and thus hedge themselves against the underperformance of any sector by taking the advantage from the rise in another sector. Asset allocation funds: These funds diversify investment by holding several different asset classes at the same time. By verifying the stocks to bonds proportion, the fund endeavours to endow the investors, with an appropriate asset allocation in different stages of their lives. They are also known as life cycle funds.