Definition
Fund of Funds (FoF)
A fund of funds invests not in stocks or bonds directly but in units of other mutual funds, including those run by the same or other AMCs.
FoFs are used to package strategies such as gold, international exposure, or a ready-made asset-allocation mix in a single product. SEBI allows domestic and overseas FoFs.
A key drawback is a possible double layer of costs, though SEBI caps the total expense ratio. Taxation also matters: after April 2023, most debt-oriented and many FoFs are taxed at slab rates, while equity-oriented FoFs and certain others may qualify for more favourable treatment depending on their underlying holdings.
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.
- International FundAn international or global fund invests in stocks listed outside India, giving Indian investors exposure to foreign markets like the US, Europe or China.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.