{"id":4230,"date":"2025-03-28T18:15:47","date_gmt":"2025-03-28T12:45:47","guid":{"rendered":"https:\/\/www.torusdigital.com\/toruscope\/?p=4230"},"modified":"2025-11-19T12:48:33","modified_gmt":"2025-11-19T07:18:33","slug":"what-is-fund-of-funds-fof","status":"publish","type":"post","link":"https:\/\/www.torusdigital.com\/toruscope\/mutual-funds\/what-is-fund-of-funds-fof\/","title":{"rendered":"Fund of Funds (FOF): Meaning, Types and Benefits"},"content":{"rendered":"

[vc_section el_id=”blog-inner-layout”][vc_row overlay_dotted=””][vc_column el_class=”blog_primary”][vc_row_inner][vc_column_inner][vc_column_text css=””]Investing can be intimidating, particularly when dealing with various fund choices. A <\/span>Fund of Funds (FOF)<\/b> streamlines this by providing diversified investments in different mutual funds to lower risk while maximising returns. Whether you are new to investing or a seasoned investor seeking professional management, <\/span>FOFs<\/b> offer a systematic method for portfolio construction.\u00a0<\/span><\/p>\n

Yet, how are they different from traditional mutual funds? Are they tax-advantaged? Do they charge higher fees? Continue reading as we demystify all you need to know about <\/span>Fund of Funds<\/b>!<\/span><\/p>\n

<\/span>What is Fund of Funds (FOF)?<\/b><\/span><\/h2>\n

A <\/span>Fund of Funds<\/b> is an investment approach, where a portfolio comprises several investment funds instead of owning <\/span>stocks<\/span>, bonds, or securities directly. Under this framework, an <\/span>FOF<\/b> invests mostly in units of other mutual fund schemes, which is referred to as a multi-manager investment.<\/span><\/p>\n

Diversification is one of the main features of a <\/span>FOF<\/b> since it distributes investments across several funds, lowering the risk. Moreover, investors can access other asset classes, making it favourable for small investors or individuals with no direct experience in choosing individual fund managers.<\/span><\/p>\n

On taxation, in Section 112A of the Income Tax Act, a <\/span>FOF<\/b> is treated as equity-oriented if it puts a minimum of 90% in an equity-oriented mutual fund, which also has 90% assets under domestic equities. It will be taxed like a non-equity-oriented fund otherwise. Therefore, <\/span>FOFs<\/b> offer an easy and diversified way of investment, suitable to a wide majority of investors.<\/span><\/p>\n

<\/span>How Does FOF Operate?<\/b><\/span><\/h2>\n

A <\/span>fund of fund meaning<\/b> includes a money pool investment vehicle where money from investors is collected and invested in various mutual fund schemes. For example, <\/span>ETFs, hedge funds, <\/span>index funds<\/a><\/strong>, sectoral funds, and thematic funds. Unlike conventional mutual funds, a FOF<\/b> does not directly invest in<\/strong> stocks<\/a>, bonds, or any other security<\/span>.<\/span><\/p>\n

For example, consider an investor owning five mutual funds:<\/span><\/p>\n