How finance folk use it
A target fund is a pooled fund that is invested in by another pooled fund that is called a fund of funds.
For example, imagine Fund A, which is a pooled fund that uses the money of its investors to buy units of Fund B, Fund C and Fund D. In this case, Fund A is a fund of funds, and its target funds are Fund B, Fund C and Fund D.
If a fund of funds only invests in one target fund, it is called a feeder fund. Taking the example above, Fund A would only buy units of Fund B, making Fund A the feeder fund and Fund B its only target fund.
Is it good or bad?
While these target funds often have high investing requirements such a large minimum investment amount, a fund of funds or feeder fund would make them more accessible by having lower requirements.
Some target funds are also based in other countries, making them difficult to directly invest in. A fund of funds would make it easier for you to put money in the target fund even if you're not in the same country as that target fund.
Since funds of funds and feeder funds have professional managers who decide on how they will be run, they may be suitable for beginner investors and people who want to diversify their investments to manage risk.
What it means for you
Target funds are made more accessible in terms of minimum investment and ease of investing through funds of funds and feeder funds.
If a pooled fund is appealing to you but find that the investing requirements are too high for your circumstances, you can try to find a fund of funds or feeder fund that has the pooled fund as its target fund.
