Fund of Funds(FoF): Meaning, Example and Types of Fund of Funds

As of mid-2025, the mutual fund sector in India witnessed a net inflow of ₹4.18 lakh crore, indicating an increasing interest of investors towards this investment option. The fund of funds is one of the mutual fund types that, instead of directly investing in stocks, bonds, etc., invests in units of other funds and generates returns if those funds become profitable. Keep reading this blog to know further about this investment option! 

Quick Synopsis

• A Fund of Funds invests in units of other mutual funds. 
• Asset, ETF, gold, strategy and sector-based are some types of FoFs.
• Similar to a regular fund, you can invest in an FoF in SIPs or a lump sum.

How Does Fund of Funds Work? 

As of FY25, the mutual fund sector in India added 4 lakh new investors. If you are one of them, understanding how an FoF works can help you make informed decisions and enjoy the potential benefits of such funds:

• When you choose a fund of funds as a mutual fund option, your fund manager invests your money across a diversified portfolio of other funds.
• Compared to an equity fund, which is much exposed to market volatility, such a strategy of investing in units of other funds adds a layer of protection. 
• The fund managers carefully select underlying funds by evaluating their performance, management quality and investment strategy.

Types of Fund of Funds in India to Invest

Now that you know the fund of funds meaning, you must learn how many types of FoFs are available in the market to understand how they generate potential returns:

• Asset-Based Fund of Funds: Under this type, fund managers invest in equity, debt or hybrid funds with potential profitability. For risk moderation, managers might invest 60% in equity and 40% in debt funds. 
• ETF-Based FoFs: Till now, equity ETFs delivered up to 14% return, whereas gold ETFs generated about 35% in 2025. Targeting such a higher return potential, FoFs invest in ETFs, enabling the possibility of gaining market-linked returns. 
• Gold FoFs: Gold prices often move in the opposite direction of interest rates. For instance, when the RBI cut the repo rate by 50 basis points to 5.50% on 6 June 2025, it created conditions that led to a rise in gold prices. In such scenarios, a Gold FoF can leverage this opportunity, helping investors benefit from potential price appreciation and optimise returns.
• Other Types of FoFs: A few other FoFs include strategy-based, sector-specific, multi-manager FoFs, etc.

Aside from an FoF investment, boost your savings with fixed-income instruments via Stable Money and earn attractive interest. Download the Stable Money app today!

Who Should Invest in Fund of Funds?

If you are new to investments, you can choose any option from the Fund of Funds list. As a comparatively safer investment option than direct market investment, it will provide you with exposure to various asset classes. 

This investment option is suitable for investors who have limited investment capital and are looking for access to a wide range of mutual funds. They are particularly suitable for long-term investors willing to stay invested for at least 5 to 7 years, as this horizon increases the chances of generating significant returns.

In case you are looking for popular Fund of Funds examples, here are a few noteworthy options  to consider:

• ICICI Prudential India Equity FOF Direct - Growth
• Aditya Birla Sun Life Multi-Asset Omni FoF Direct-Growth
• Quantum Multi Asset Active FoF Direct-Growth

Benefits and Drawbacks of Investing in a Fund of Funds

Like any investment, a Fund of Funds comes with its own set of advantages and limitations. Thus, it is important to understand both sides before prioritising any investment decision. 

Advantages of FoF Investments

• Investing in an FoF lets you have broader market exposure across various types of securities across various industries, sectors, etc.
• As FoFs invest in other mutual funds, you can benefit from the expertise of multiple fund managers. This is because your FoF manager selects and monitors the underlying funds and each underlying fund is managed by its own specialist.

Disadvantages of FoF Investments

• As FoFs invest in other mutual funds and pay for the expense ratios of those as well, the ratio for the fund itself can be high. For example, for equity FoFs, the ratio might go up to 2.25%.
• FoFs might invest in funds that might hold similar stocks or other securities. This leads to fund overlaps that reduce diversification. 

Step-by-Step Guide to Invest in Fund of Funds

Here is a simple 4-step guide that you must follow to invest in your preferred FoF online:

Step 1: Choose a mutual fund provider such as a financial institution, bank or investment platform. Open an account by fulfilling KYC by producing a PAN Card, Aadhaar, etc. 

Step 2: When choosing a FoF, align your decision with your investment goals, time horizon and risk tolerance. Evaluate key factors such as historical performance, Net Asset Value (NAV) and expense ratio before making a choice.

Step 3: Choose your preferred investment option, such as the Systematic Investment Plan (SIP) or lump sum. 

Step 4: Select the number of units you want to invest in and make the payment from your linked bank account or preferred payment method to initiate the investment. 

Final Word

A fund of funds invests in units of other mutual funds instead of directly investing in stocks, bonds, etc., like a regular mutual fund. This adds a potential safety net for investors against market movements, allowing for diversification. These are suitable for new investors with low risk tolerance. 

While you invest in a FoF, build an additional corpus for your future with an FD or an RD. Download the Stable Money app, book an FD and earn up to 8.40% interest annually.