Definition
Fund of Funds ETF
A fund of funds (FoF) is a mutual fund scheme that invests in units of other funds or ETFs rather than directly in securities, often used in India to give domestic investors access to ETFs without a demat account.
Many Indian AMCs offer FoFs that hold an underlying ETF, including international, gold or domestic index ETFs. The FoF lets investors buy and redeem at NAV through the regular mutual-fund route, sidestepping the need for a trading and demat account and avoiding on-screen premium/discount risk.
The trade-off is an extra layer of costs, the FoF's own expense ratio on top of the underlying ETF's, and potentially less favourable taxation depending on the FoF's asset mix. FoFs are particularly common for international ETF access, where direct overseas ETF buying is impractical for retail investors.
Related terms
- Expense RatioThe expense ratio is the annual fee a mutual fund or ETF charges as a percentage of assets, covering management and operating costs, which directly reduces investor returns.
- Premium/Discount to NAVAn ETF trades at a premium when its market price is above its net asset value and at a discount when below, reflecting temporary imbalances between on-screen supply and demand and fair value.
- International ETFAn international ETF gives Indian investors exposure to overseas markets or indices, such as the Nasdaq 100 or S&P 500, by holding foreign securities or feeding into an overseas fund.
- Gold ETFA Gold ETF is an exchange-traded fund that tracks the price of physical gold, letting investors buy and sell gold exposure on the stock exchange in demat form.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.