Master Feeder Fund

A master feeder fund is a structure where multiple investment vehicles (feeder funds) pool their assets into a single entity (master fund), often used for operational efficiency and to cater to different investor types or regulatory requirements.
Master Fund
3 min

A master feeder fund is an investment structure comprising two tiers, facilitating hedge funds in consolidating investment capital and constructing larger portfolios. Within this framework, First, investors put their money into feeder funds. These feeder funds then pool all the money together and invest it into a bigger fund called the master fund. The master fund is the one that actually buys and sells stocks and other investments. When the master fund makes money, that profit is shared among the feeder funds, and then given back to the individual investors who originally put their money in. This setup helps investors work together better and follow the rules made by the government for investing. It's a good choice for investors who want smart ways to manage their investments.

What is a master-feeder fund?

A master-feeder fund is an investment mechanism that aggregates monies from several feeder funds into a gigantic portfolio. The fund takes the form of capital gathered collectively and expenses used in a coordinated portfolio that simultaneously diversifies like assets and simplifies management and operations. It ensures the amount of fee to be levied is minimal and there is a standardised approach to reporting and client instructions that shall be followed.

For example, a master-feeder fund in the Indian market may aggregate monies from numerous regional feeder funds. Each feeder fund aggregates money from multiple retail investors and transfers the money to the master fund. The master fund, regulated and managed by fund managers, invests in different sectors of the economy such as technology, healthcare, and infrastructure, hence creating a more balanced and diversified portfolio. Master-feeder funds can offer diversified investment opportunities, whereas SIP investments allow periodic investment and lumpsum investment provide a one-time capital infusion.

Example of master-feeder fund

Typically, a master-feeder fund arrangement may consist of several Indian feeder funds aggregating monies from small local investors which are channelled into a master fund, operating on a global scale that invests in companies’ shares, bonds, and real estate allowing investors to diversify their asset base across the globe. Several feeder funds across India receive investments from retail investors. The collected funds are then invested in a single master fund located in a global finance hub like New York. This fund can further invest in various asset classes such as US equities, European bonds, and the property market within the Asian markets. The master fund then consolidates the returns and invests back the returns in the various feeder funds. The many feeder funds are responsible for attracting investment, and the investment collected is then transferred to the master fund.

Structure of master feeder fund

The master-feeder fund structure is an investing architecture in which feeder funds gather investor cash and invest it in a central master fund, which then manages the assets, spreading investments across many categories. Master-feeder funds collect investments from individual and institutional investors.

  • Investment consolidation
    The collected money is combined and sent to the master fund.
  • Diversified management
    The master fund, run by skilled managers, spreads its investments across various types of assets.
  • Return distribution
    The returns made by the master fund are given back to the investors through feeder funds.
  • Operational efficiency
    This structure simplifies the investment and fund management processes, making operations more efficient.

How does master feeder fund work?

The master-feeder fund effectively combines resources from individual investors via feeder funds, which are then strategically invested in a master fund. This central fund administers the assets, with the goal of optimising investment growth and return on capital.

  • Fund gathering
    In the master-feeder system, feeder funds collect money from both individual and group investors. These feeder funds gather money from various sources, creating a big pool of money for investments.
  • Unified investment approach
    The gathered money is then directed into a single master fund. This master fund is the main tool for managing the collected investments. It follows a unified investment strategy, which is often stronger and more varied because of the larger pool of money available.
  • Strategic investment distribution
    The master fund, run by skilled financial experts, systematically spreads the collected money across different investment options. This includes a range of market sectors, geographical areas, and types of assets, aiming to maximise growth potential and spread out risks.
  • Sharing the returns
    The profits or returns made by the master fund's investments are shared back to the feeder funds based on how much they contributed. These returns are then passed on to the individuals in the feeder funds relative to how much they invested.
  • Efficiency and cost savings
    By having the master fund manage all investments, this system boosts efficiency. It removes the need for multiple investment management teams and strategies, which reduces costs and simplifies administration.

Advantages of master feeder funds

The fundamental advantage of master-feeder arrangements is their capacity to efficiently pool resources from several sources, allowing for greater investment diversification and access to more sophisticated asset management methods, which can lead to potentially higher returns. Here are listed some master-feeder fund benefits:

  • The master-feeder system pools large sums of capital, making investment and management more cost-effective. This often results in lower fees and stronger bargaining power for investments.
  • By participating in a master fund, individuals gain access to a broad range of investment options that are usually out of reach, including international markets and specialised asset classes.
  • The master feeder fund is typically managed by professional fund managers with extensive experience, enabling well-informed investment decisions and smart asset allocation, often improving fund performance.
  • The master-feeder structure offers smaller investors a chance to participate in high-value investment strategies, making previously exclusive opportunities available to a broader audience.
  • This structure also centralises managerial and administrative tasks, reducing operational costs and streamlining the investment process for all involved.

Disadvantages of master feeder funds

The fundamental downside of master-feeder arrangements is their complexity and the potential for increased fees owing to the layered investing process combining feeder and master funds, which results in inefficiencies and higher costs for investors.

  • Investors might face multiple layers of fees at both the feeder and master fund levels, which can lower their overall returns.
  • The master-feeder relationship can be complex to manage, especially for those new to investing, making it hard to understand investment strategies and risks.
  • Investors in feeder funds often have little say or influence over the investment decisions of the master fund.
  • If the master fund follows a specific investment strategy, it could lead to concentration risks that might diminish the benefits of diversification.
  • Withdrawing funds can be restricted by certain conditions or schedules, limiting the flexibility of investors.

Quick summary on master feeder funds

  • A master fund is a large investment pool that collects resources from many smaller feeder funds, focusing on strategic growth and effective asset management.
  • Typically, several Indian master feeder funds combine investor money into a master fund that invests internationally in stocks, bonds, and real estate, giving investors global exposure.
  • These master-feeder systems gather funds from investors and direct them to a central master fund, which manages the assets and diversifies investments. The master feeder fund operates by pooling assets from various sources and utilising professional fund managers to maximise asset growth and manage the distribution of returns.
  • The primary advantage of these arrangements is their ability to efficiently blend resources from multiple sources, allowing investors to diversify their risk and employ more sophisticated asset management strategies, potentially leading to higher returns.


In the context of managing investments through master feeder funds, the Bajaj Finserv Mutual Fund Platform proves to be a crucial tool. It lists over 1000 mutual fund schemes, offering a comprehensive range of options suitable for various investment strategies, whether you're a novice individual investor or a large institution looking to create endowments. The platform is designed to streamline the investment process, making it accessible and aligning your financial contributions with long-term objectives in education, research, and innovation. It's not just about fund management; it’s about enabling substantial, enduring contributions, with Bajaj Finserv Platform providing expert guidance every step of the way.

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Frequently asked questions

What is the meaning of master fund?
A master fund is a central investment vehicle that pools capital from various sources to invest in diverse financial assets. It simplifies management and reduces operational costs by aggregating investments into one large portfolio.

What is the difference between a feeder fund and a master fund?
A feeder fund invests its capital into a master fund rather than directly into securities. The master fund then handles all investment decisions and management. This structure allows feeder funds to benefit from economies of scale and centralised expertise.
What is a master fund structure?
A master fund structure involves multiple feeder funds investing into a single master fund. This arrangement centralised investment management and diversified investment sources, enhancing efficiency and potentially reducing costs.
What is the difference between a master fund and an umbrella fund?
A master fund is a single fund managing collective investments from various feeder funds. An umbrella fund, however, contains multiple sub-funds, each with its own asset allocation and investment strategy, under a single legal and administrative framework.
What is the difference between a feeder fund and a master fund?
A feeder fund invests all its assets into a master fund, which then manages those investments. The master fund consolidates capital from multiple feeder funds, managing it under a unified strategy. The key difference is in the roles: feeder funds gather capital, while the master fund manages it.
What do you mean by feeder fund?
A feeder fund is an investment vehicle that channels money from investors into a master fund. This setup allows the feeder fund to leverage the master fund's larger asset base and professional management, while focusing solely on capital accumulation.
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The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.