--- title: What is a Fund of Funds (FoF)? canonical_url: https://sanchaykaro.com/what-is-a-fund-of-funds-fof/ last_updated: 2026-04-23T07:14:43+00:00 plugin_version: 1.2.1 --- # What is a Fund of Funds (FoF)? Do you want to invest in the **stock market** but feel overwhelmed by having to pick multiple **mutual funds**? Do you want **diversification** across **equity**, **debt**, **gold**, and even **global markets** but don’t want to manage five different **portfolios**? A **Fund of Funds (FoF)** could be the perfect choice for you. This [blog](https://sanchaykaro.com/blog/) explains **what is a Fund of Funds** in very simple language. You will also learn how to invest easily using the **Sanchaay Karo app**. --- ### What is a Fund of Funds? (Very Simple Definition) A **Fund of Funds (FoF)** is a unique type of **mutual fund** that does not directly invest in **stocks**, **bonds**, or **gold**. Instead, it [invests your money in **units** of **other mutual fund schemes**](https://sanchaykaro.com/turn-your-tax-savings-into-wealth-with-elss/). Think of it like this: A regular **mutual fund** buys shares of **companies**. A **Fund of Funds** buys units of **other [mutual funds](https://sanchaykaro.com/building-your-mutual-fund-portfolio-a-step-by-step-blueprint-for-indian-investors/)**. If you invest in a **FoF**, you are essentially buying a "basket of baskets". One single **investment** gives you access to multiple **fund managers**, multiple **investment strategies**, and multiple **asset classes** like **equity**, **debt**, **gold**, and even **international stocks**. For example, if you invest in a **Multi-Asset FoF**, the **fund manager** will put your money into an **equity fund**, a **debt fund**, and a **gold fund**. You get the benefit of all three **asset classes** through just one **SIP**. This makes **FoFs** a powerful tool for investors who want **simplicity** and **professional management**. --- ### How Does a Fund of Funds Work? (Step-by-Step) **Funds of Funds** work on a simple **two-layer** principle. Here is how your money moves: 1. **You Invest:** You purchase **units** of a **FoF** scheme, just like any other **mutual fund**, through a **SIP** or a **lump sum**. 2. **The FoF Invests:** The **fund manager** of the **FoF** takes your money and buys **units** of other **mutual funds** (called **underlying funds**). These could be funds from the same **AMC** or different **AMCs**. 3. **The Underlying Funds Invest:** Those **underlying funds** then invest your money directly into **stocks**, **bonds**, **gold**, or other **securities**. This layered structure is designed to provide **instant diversification**. You can own a piece of a **large [cap fund](https://sanchaykaro.com/%f0%9f%92%bc-bank-of-india-large-cap-fund-regular-plan-growth-a-reliable-path-to-long-term-wealth-creation/)**, a **mid cap fund**, and an **international fund** all within a single **FoF** scheme. --- ### Key Features of Fund of Funds FeatureWhat It Means**Investment in Funds**Invests in **units** of other **mutual funds** or **ETFs**, not directly in **stocks** or **bonds****Multi-Asset Exposure**Provides exposure to **equity**, **debt**, **gold**, **silver**, and **international markets** through one product**Professional Management**Expert **fund managers** select and rebalance the **underlying funds** for you**SEBI's 95% Rule****SEBI** now mandates that **FoFs** must invest a minimum of **95%** of their assets in the **underlying funds****Low Minimum Investment**You can start a **SIP** with as little as **₹500** per month**No [Demat Account](https://sanchaykaro.com/open-your-ac-agarwal-demat-account/) Needed**You can invest in **ETF-based FoFs** without needing a **trading account** or **Demat account****Liquidity**Most **FoFs** are **open-ended**; you can redeem your **units** on any business day--- ### Types of Fund of Funds in India (2026) **FoFs** come in many shapes and sizes. Here are the most common types available in India today: Type of FoFWhat It Invests InBest For**Multi-Asset FoFs****Equity**, **debt**, **gold**, and sometimes **silver** or **international stocks**Investors looking for a **balanced portfolio** in a single [fund](https://sanchaykaro.com/get-a-credit-line-against-your-mutual-fund-portfolio/)**International FoFs****Overseas mutual funds** or **ETFs** tracking global indices like the **S&P 500** or **Nasdaq**Investors wanting **global diversification** without a foreign account**Gold FoFs****Gold ETFs** or funds holding **physical gold**Investors looking to hedge against **inflation** and **economic uncertainty****ETF-based FoFs****Exchange Traded Funds (ETFs)** instead of regular **mutual funds**Investors who want low-cost **ETF** exposure without a **Demat [account](https://sanchaykaro.com/open-demat-account-online-for-free-with-bloom/)****Domestic FoFs****Equity**, **debt**, and **hybrid funds** within the Indian marketInvestors focusing only on the Indian market**Thematic/Sector FoFs**Funds focused on specific **sectors** like **technology**, **infrastructure**, or **PSU**Investors with a strong view on a particular **theme** or **industry****SEBI's new classification (February 2026)** has further standardised **FoFs** into clear buckets like **equity-oriented**, **debt-oriented**, **hybrid**, **commodity-based**, and **overseas**. --- ### Benefits of Investing in Fund of Funds Here are the main benefits of adding a **Fund of Funds** to your **mutual fund portfolio**: BenefitWhy It Matters**Instant Diversification**One **FoF** gives you exposure to multiple **fund houses**, **strategies**, and **asset classes**, reducing **concentration risk****Professional Asset Allocation**The **fund manager** handles the complex task of selecting the right mix of **equity**, **debt**, and **gold** for you**Access to Global Markets**International **FoFs** allow you to invest in global giants like Apple, Amazon, or Google without opening an overseas account**Simplified Management**You manage **one fund** instead of tracking five or six different **schemes** across multiple **AMCs****Low Entry Barrier**You can access **international** or **thematic** markets with a small **SIP** of just ₹500**ETF Access Without Demat****ETF-based FoFs** let you invest in **ETFs** without needing a **trading account** or **Demat account****Strong Performance**Top **Multi-Asset FoFs** delivered **21–25%** returns in 2025, outperforming many pure **equity categories**--- ### Risks of Fund of Funds (Must Read) **Funds of Funds** are powerful, but they come with **unique risks** that every **investor** must understand: RiskExplanation**Double Layer of Expenses**You pay the **expense ratio** of the **FoF** plus the **expense ratios** of the **underlying funds**. This layered fee structure can reduce your **net returns****Tax Inefficiency**Many **FoFs** are still taxed as **debt funds** even if they invest mostly in **equity**. This can lead to higher **tax incidence** compared to directly investing in an **equity fund****Over-diversification**Investing in too many **underlying funds** can dilute your **returns**. Sometimes, owning fewer **funds** is better**Fund Manager Risk**Your **returns** depend on the **FoF manager's** skill in selecting the right **underlying funds**. A bad selection can hurt your **portfolio****Limited Control**You cannot customise the **allocation** across **underlying funds**. The **fund manager** makes all the decisions for you--- ### Taxation on Fund of Funds (Simple Rules for FY 2026-27) The **taxation** of **FoFs** has changed multiple times. Here are the current rules after **Budget 2024**: Purchase DateHolding PeriodTax Treatment**On or after July 23, 2024**Less than 24 monthsGains added to your **income** and taxed as per your **income tax slab rate** (STCG)**On or after July 23, 2024****24 months or more****LTCG** taxed at **12.5%** (without **indexation**) for most **FoFs****April 1, 2023 – July 22, 2024**Any periodGains added to your **income** and taxed as per your **slab rate** (no **indexation**)**Before April 1, 2023**3 years or more**LTCG** taxed at **20% after indexation** (grandfathered for older investments)**Important Notes:** - Most **FoFs** (including **Multi-Asset FoFs** and **International FoFs**) now qualify for the **12.5% LTCG** rate if held for **over 2 years**. - **AMFI (Association of Mutual Funds in India)** has proposed that **equity-oriented FoFs** (investing 90%+ in **equity funds**) should be treated like regular **equity funds** with a **12-month LTCG** period. If approved, this would be a major benefit for **investors**. --- ### Top Fund of Funds in India (2026) Here are some of the **best performing FoFs** in India: Fund NameType of FoF1-Year Return (%)Expense RatioKey Features**Edelweiss Multi-Asset FoF**Multi-Asset**25.25%**0.40%Invests in **International Equity**, **Debt**, and **Gold****ICICI Prudential BHARAT 22 FOF**Thematic (PSU)**24.42%**0.13%Invests in **PSU** stocks through the BHARAT 22 **ETF****Kotak Multi-Asset FoF**Multi-Asset**24.36%**0.31%Mix of **Domestic Equity**, **Gold ETF**, **Debt**, and **Global Funds****Bandhan Multi-Asset Passive FoF**Multi-Asset**21.11%**—Passive approach to **asset allocation***Disclaimer: Past performance does not guarantee future returns. Please consult your **financial advisor** before investing.* --- ### Who Should Invest in Fund of Funds? (Ideal Investor Profile) **Funds of Funds** are perfect for: - **Beginners** who want a simple, "one-stop-shop" **investment** without the hassle of managing multiple **schemes** - **Busy professionals** and **salaried individuals** who do not have the time to research and rebalance multiple **funds** - **Investors looking for global diversification** but do not have a foreign bank account or **Demat account** - **Conservative investors** who want a balanced mix of **equity**, **debt**, and **gold** in one single **portfolio** - **Investors who want to invest in ETFs** but do not want to open a **trading account** - **Retirees** who want **professional asset allocation** without actively managing their **portfolio** **Who should AVOID Fund of Funds?** - **Cost-conscious investors** who want the absolute lowest **expense ratio** (investing directly in **index funds** or **ETFs** may be cheaper) - **DIY investors** who enjoy picking their own **funds** and controlling their own **asset allocation** - **Short-term investors** with a horizon of less than **2 years** (to avoid **STCG** taxation at **slab rates**) --- ### Fund of Funds vs Direct Mutual Funds – Which is Better? Many **investors** ask: Should I invest in a **FoF** or directly in a **mutual fund**? AspectFund of Funds (FoF)Direct Mutual Fund**How It Works**Invests in **other funds**Invests directly in **stocks** or **bonds****Expense Ratio****Higher** (two layers of fees)**Lower** (single layer of fees)**Diversification****Very High** (across multiple funds and **asset classes**)Depends on the **fund** you choose**Management Effort****Minimal** – all handled by the **FoF manager**You may need to manage multiple **funds** yourself**Global Access****Easier** through international **FoFs**You need a dedicated international **fund****Best For****Simplicity** and **diversification****Cost-saving** and **direct control****Which is better?** If you want **simplicity** and **professional asset allocation**, a **FoF** is excellent. If you want to save on **expenses** and have the time to manage your **portfolio**, direct **mutual funds** may be better. --- ### SEBI's New Rules for Fund of Funds (2026) – Important Update In February 2026, **SEBI** introduced major changes for **FoFs** to improve **transparency** and **investor protection**: New RuleWhat It Means for You**95% Minimum Investment****FoFs** must now invest at least **95%** of their total assets in **underlying funds****Standardised Categories****FoFs** can only be launched in clearly defined buckets: **equity-oriented**, **debt-oriented**, **hybrid**, **commodity-based**, **overseas**, and **domestic-plus-overseas****Caps on Number of FoFs****SEBI** has capped how many **FoFs** a single **AMC** can launch per sub-category, preventing product overload and confusion**Clear Naming Conventions****Scheme names** must now clearly reflect their category. Words highlighting only **return** aspects are not allowedThese new rules ensure that **FoFs** remain "**true to label**" and provide clear, predictable **portfolios** for **investors**. [[SIP for emergency fund](https://sanchaykaro.com/sip-for-emergency-fund/)](https://sanchaykaro.com/sip-for-emergency-fund/)--- ### How to Invest in Fund of Funds Using Sanchaay Karo App Now that you understand **what is a Fund of Funds**, the next step is **investing**. The easiest way is through the **Sanchaay Karo app**. **Sanchaay Karo** is a simple, trusted, and **SEBI-registered** mutual fund investment platform. It helps you invest in **top FoFs** and hundreds of other funds with just a few taps. #### Why Choose Sanchaay Karo App for FoF Investment? - **Smart Goal-Based Investing**: Tell the app your goal (retirement, child's education, buying a house). It suggests the right **FoF** based on your **risk profile** and **investment horizon** - **Simple Dashboard**: See all your investments in one place – no confusion or clutter. Track **NAV**, **returns**, and **portfolio** in real time - **Quick KYC**: Complete your **KYC online** using Aadhaar and PAN in just 5 minutes. **Paperless KYC** is fully supported - **Start SIP from ₹500**: You don't need a lot of money. Start small with a **Systematic Investment Plan (SIP)** . You can do **monthly SIP**, **weekly SIP**, or **daily SIP** - **Track Performance**: Get regular updates on how your **FoF** is performing against its **benchmark** - **No Hidden Charges**: Transparent and low-cost. You can choose between **regular plan** and **direct plan** options - **Stay On Track**: Get timely reminders so your **SIPs** never stop - **Access to All AMCs**: Invest in **Edelweiss Multi-Asset FoF**, **Kotak Multi-Asset FoF**, **ICICI Prudential BHARAT 22 FOF**, and many more #### Steps to Invest in Fund of Funds (Very Easy) 1. **Download** the **Sanchaay Karo app** from Google Play Store or Apple App Store 2. **Sign up** using your mobile number and email 3. **Complete KYC** – upload **PAN card** and Aadhaar (fully paperless). You can also do **video KYC** if needed 4. **Search** for "Fund of Funds" or "FoF" or let the app recommend one based on your **financial goals** 5. **Compare** different **FoFs** based on **returns**, **expense ratio**, **exit load**, **underlying funds**, and **fund manager** track record 6. **Choose** between **lumpsum** (one-time) or **monthly SIP** investment. For **FoFs**, **SIP** is highly recommended 7. **Pay** using **UPI**, net banking, or debit card 8. **Done!** Your investment starts growing. You will receive regular statements 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- ### Important Tips Before Investing in Fund of Funds Before you invest in a **Fund of Funds**, keep these points in mind: 1. **Check the Total Expense Ratio**: Look at the **aggregate expense** of the **FoF** plus its **underlying funds**. This total cost should be reasonable compared to the benefits offered. 2. **Understand the Double Layer**: Be aware that you are paying fees at two levels. This is the price for **diversification** and **professional management**. 3. **Match the Holding Period**: To get the **12.5% LTCG** tax benefit, you must hold the **FoF** for **at least 24 months**. **Short-term** investments are taxed at higher **slab rates**. 4. **Look for Low-Cost Options**: **ETF-based FoFs** and **passive FoFs** often have much lower **expense ratios** than actively managed **FoFs**. 5. **Use SIP for Disciplined Investing**: A **Systematic Investment Plan (SIP)** helps you invest regularly and benefits from **rupee cost averaging**. 6. **Check the Underlying Funds**: Look at what **funds** the **FoF** invests in. Are they from reputable **AMCs**? Are they well-diversified? 7. **Do Not Chase Past Returns**: A **FoF** that performed well last year may not repeat it. Look for consistency over 3-5 years. --- ### Frequently Asked Questions (FAQs) About Fund of Funds **Q1: What is a Fund of Funds (FoF)?** A: A **Fund of Funds** is a **mutual fund** that invests in **units** of other **mutual funds** or **ETFs**, rather than directly investing in **stocks** or **bonds**. **Q2: Are Fund of Funds safe?** A: **FoFs** are as safe as the **underlying funds** they invest in. They carry **market risk** but offer **diversification**, which reduces overall **portfolio risk**. **Q3: Can I lose money in Fund of Funds?** A: Yes, you can lose money in the **short term** if the **underlying funds** perform poorly. However, **FoFs** are designed for **long-term wealth creation**, and **diversification** helps reduce **volatility**. **Q4: What is the minimum SIP amount for Fund of Funds?** A: Most **FoFs** allow **SIP** starting from **₹500** per month. Through the **Sanchaay Karo app**, you can start with as little as **₹500**. **Q5: How much returns can I expect from Fund of Funds?** A: **Returns** vary by the type of **FoF**. Top **Multi-Asset FoFs** delivered **21–25%** in 2025. **International FoFs** and **equity-oriented FoFs** have historically delivered **10-14%** over the long term. **Q6: What is the difference between a Fund of Funds and an ETF?** A: A **Fund of Funds** invests in **mutual funds** and can be bought directly through a **mutual fund** app like **Sanchaay Karo**. An **ETF** must be bought on a **stock exchange** through a **Demat account**. **Q7: How are Fund of Funds taxed?** A: For **FoFs** purchased after July 23, 2024, **LTCG** (holding over **24 months**) is taxed at **12.5%** . **STCG** (holding under 24 months) is taxed at your **income tax slab rate**. **Q8: Can NRIs invest in Fund of Funds?** A: Yes, **NRIs** can invest in **FoFs** through **Sanchaay Karo app** using their NRE/NRO account. **Q9: What is the expense ratio of Fund of Funds?** A: The **expense ratio** includes the **FoF's** fees plus the fees of the **underlying funds**. It typically ranges from **0.30% to 1.50%** depending on the type of **FoF**. **Q10: What are the new SEBI rules for Fund of Funds (2026)?** A: **SEBI's February 2026 circular** mandates that **FoFs** must invest at least **95%** in **underlying funds** and classifies them into clear buckets like **equity-oriented**, **debt-oriented**, **hybrid**, and **overseas**. --- ### Final Words – Should You Invest in a Fund of Funds? **Yes**, if you: - Are a **beginner** looking for a simple, low-effort way to build a **diversified portfolio** - Want **global diversification** without opening a foreign account or **Demat account** - Are a **busy professional** who does not have time to research and rebalance multiple **funds** - Want a **balanced portfolio** of **equity**, **debt**, and **gold** in a single **SIP** - Have a **long-term horizon** of at least **2-3 years** (to benefit from **LTCG taxation**) - Value **professional asset allocation** and **simplicity** over saving the last 0.5% in **expenses** **No**, if you: - Are a **cost-conscious investor** who wants the absolute lowest **expense ratio** (consider **index funds** or **ETFs** directly) - Are a **DIY investor** who enjoys picking your own **funds** and controlling your own **asset allocation** - Have a **very short-term horizon** (less than 2 years) – **liquid funds** or **ultra-short duration funds** may be more suitable **Funds of Funds** are one of the smartest and simplest ways to build a **diversified portfolio** in the **stock market** and beyond. They are particularly valuable for **beginners**, **busy professionals**, and **investors** who want access to **global markets** without complexity. The golden rule for **FoF** investing: **Start early, invest through SIP, stay invested for the long term (2+ years to get LTCG tax benefit), and check the total expense ratio of both the FoF and its underlying funds.** Start your **investment journey** today with the **Sanchaay Karo app**. 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- **Disclaimer:** This blog is for **educational purposes** only. **Mutual fund investments** are subject to **market risks**. **Funds of Funds** carry **expense ratio risk**, **market risk**, and **tax risk**. Please read all **scheme related documents** carefully, including the **Scheme Information Document (SID)** and **Statement of Additional Information (SAI)** , and consult your **financial advisor** before investing. **Past performance** does not guarantee **future returns**. The **Sanchaay Karo app** is a platform for mutual fund investments; all investments are subject to **market risk**.