Fund of Funds (PE/VC)

One layer up from the deal

A fund of funds, or FoF, answers a question wealthy investors and institutions often face: how do you get exposure to private equity and venture capital without picking individual startups or backing a single manager? Instead of investing directly in companies, an FoF pools capital and invests in a portfolio of other PE or VC funds.

That extra layer buys diversification. A limited partner who commits to one FoF effectively gets a spread across many underlying managers, vintages, sectors and stages, which softens the blow if any single fund or company disappoints. In a market where venture returns are highly skewed toward a few winners, that breadth can matter.

The Indian flagship

India's most prominent FoF is the government's Fund of Funds for Startups, operated through SIDBI. Rather than investing in startups itself, it commits capital to SEBI-registered Alternative Investment Funds, which in turn back early and growth-stage companies.

The scheme carries a large approved corpus and is designed to crowd in private capital, since the AIFs it backs raise additional money from other investors. It builds on SIDBI's long history of seeding venture funds in India stretching back to the 1990s, and has become a cornerstone of the Startup India ecosystem.

The cost of convenience

The obvious drawback is fees on fees. Investors pay the FoF manager and, indirectly, each underlying fund, which can meaningfully drag on net returns over a long lock-up.

There is also less control and visibility into the eventual companies you are exposed to. For institutions, family offices and large investors who lack the time, network or ticket size to access top-tier PE and VC funds directly, an FoF is a practical entry route. For most retail investors in India, this remains an institutional rather than a personal-portfolio instrument.