WHAT IS A FUND OF FUNDS (FOF)?
A Fund of Funds (FoF) is a mutual fund scheme that invests in one or multiple mutual fund schemes rather than buying individual securities. The underlying investments for an FoF are the units of other MF schemes, which are either from the same fund house or from other Indian fund houses.
HOW MUCH DO DOMESTIC FOFS MANAGE IN ASSETS?
As of October 31, 2025, 120 domestic FoF schemes with 65.6 lakh folios managed assets worth Rs 1.62 lakh crore.
WHAT ARE THE TYPES OF FOFS AVAILABLE IN INDIA?
A FoF can be domestic or overseas. In the case of a foreign FoF, the fund manager invests in units of international mutual fund schemes. In the case of a domestic FoF, there are asset allocation schemes that invest in a mix of equity, debt, and gold; equity FoFs that invest in a mix of large-, mid- and small-cap funds; and simple schemes that invest in an underlying ETF, catering to those who do not want the hassles of the stock exchange and demat accounts.
WHAT ARE THE PROS AND CONS OF A FOF?
The biggest advantage a Fund of Funds offers is that when the fund manager rebalances the portfolio, there is no capital gains tax for the investor. Therefore, when FoFs are rebalanced to maintain the desired allocation between debt and equity, you do not pay capital gains tax. FoFs offer ease of investing, as there is one NAV to track, and they reduce the overall number of funds in your portfolio. Since they are managed by professional fund managers, investors are assured of the credibility of the person managing their money. The product also gives ready-made asset allocation to investors with limited wealth who find it difficult to be serviced by a wealth manager or advisor. The biggest disadvantage of an FoF is the higher expense ratio, as investors end up paying for the underlying fund as well as for the FoF.HOW ARE FOFS TAXED?
All equity-oriented FoFs have a 12.5% long-term capital gains (LTCG) tax if held for over 24 months, making them very tax-efficient. If sold before 24 months, you will be taxed in line with your income tax slab rates.
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