hr: Money

‘Target Date Mutual Funds’, or ‘Fund of Funds’ as they are called in some places, are Mutual Funds that invest in Stocks and Bonds in a constantly shifting percentage, based on your age.

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That just about sums up the definition. What it means is, that as you get older, you have less appetite for risk. And this means that you want to slowly shift your investments into more secure asssets like bonds. While this can be a time consuming task, there are funds that automatically help you out.

This is called ‘Rebalancing’. Suppose you currently have 80% of your investments in stocks, and 20% in bonds, your Fund of Funds will automatically ensure that the asset allocation is maintained periodically. This removes the burden off the head of the individual investor.

The problem might be with diversification. Fund managers typically invest in underlying assets that are schemes of their own. This means that you’re constantly tied into one mutual fund house. That is something that you might not want.

Also keep in mind, that there will probably be no tax benefits associated with the fund, and so you would want to look at the whole thing in totality. If the idea of maintaining an asset class appropriate to your age is appealing, then This would be the way to go for you.