Fund of Funds (FoF) refers to mutual fund schemes that invest your money in other mutual fund schemes, rather than directly investing in bonds, stocks, or other securities.

In simple terms, you can think of it as a fund made up of other funds. The underlying units are selected based on the objective of the FoF. For example, a debt-oriented FoF invests in debt mutual fund schemes, while an equity- oriented FoF invests in equity mutual fund schemes.

Fund of Funds account for a sizeable chunk of the Indian mutual fund market. As of June 2026, domestic FoF’s had a net AUM of Rs. 2.14 lakh crore.

You can consider investing in a Fund of Funds if you:

• Seek diversification: By choosing to invest in an FoF, you can spread your investment across different underlying mutual fund schemes rather than depending on just one fund.
• Don’t wish to select funds yourself: Studying and comparing various mutual fund schemes can take time and effort. An FoF does this work at the scheme level, as per the investment objective.
• Want exposure to different asset classes: Based on the FoF you choose, you can gain exposure to debt, equity, commodities, or a mix of asset classes through the underlying schemes.
• Want international exposure: There are certain FoFs that invest in overseas ETFs or mutual funds, giving Indian investors a way to gain access to international markets.

Before you invest, make sure to check what the particular Fund of Funds invests in. Two different FoFs can have very different portfolios and associated risk levels.

Fund of Funds work by collecting different sums of money from you, either through SIPs or through lump sum investments. Then, the FoF invests this money in one or more underlying mutual fund schemes, as per its investment strategy.

Let’s say you invest Rs. 40,000 in a particular Fund of Funds.

Let’s assume that the Fund of Funds allocates your investment accordingly:

• Fund A: Rs. 20,000
• Fund B: Rs. 5,000
• Fund C: Rs. 10,000
• Fund D: Rs. 5,000

If the combined value of these investments increases by 8%, your investment would become:

Rs. 40,000 + (Rs. 40,000 x 8%) = Rs. 43,200

However, you must note that the value can fall as well. If it falls by 8%, your investment would become:

Rs. 40,000 - (Rs. 40,000 x 8%) = Rs. 36,800

The actual return you receive will also reflect the performance and expenses of the FoF and its underlying schemes.

Some of the broad categories include:

• Equity-oriented FoF (Domestic): These Fund of Funds invest in equity-oriented mutual fund schemes. The framework mandated by SEBI includes diversified FoFs and sectoral/thematic FoFs within this category.
• Debt-oriented FoF (Domestic): These Fund of Funds invest in debt-oriented mutual fund schemes. Based on the scheme, the underlying investments may come from one or more debt fund categories.
• Hybrid FoF (Domestic): These Fund of Funds combine schemes across asset classes.
• International/Overseas FoF: These Fund of Funds invest in ETFs or mutual funds of overseas markets, giving you the exposure and choice to invest in foreign companies.
• Commodity-related FoF: These Fund of Funds invest in assets such as gold, through underlying schemes or ETFs. This ensures you do not need to buy the asset directly.

Here’s how investing in a Fund of Funds can help you:

• Diversification: A FoF can invest across multiple underlying schemes. Depending on the scheme, you stand a chance of spreading your investment across different asset classes.
• Simpler fund selection: Instead of having to separately select and manage different mutual funds, you can invest in one FoF that allocates money among its chosen underlying schemes.
• Access to different markets: There are certain FoFs that provide access to international markets or asset classes that you otherwise may have to invest in separately.
• Portfolio rebalancing: When the scheme’s strategy requires it, the fund manager can change allocations among underlying schemes to maintain the intended portfolio structure.

Here are some important risks of investing in a Fund of Funds:

• Market risk: If the underlying funds invest in debt, equities, commodities, or international markets, changes in those markets can affect your FoF’s value.
• No guaranteed returns: Fund of Funds do not provide any guaranteed returns. Their performance depends on the performance of underlying schemes and the assets held by those schemes.
• Two levels of expenses: Fund of Funds incur expenses at the FoF level, while the underlying schemes also have their expenses.
• Overlap risk: Different underlying funds may hold some of the same securities.

How can you manage these risks?

Here are a few ways you can manage these risks:

• Check the underlying funds: Don’t just check the FoF’s name. Also, look at which schemes it invests in, and understand their investment strategies and asset classes.
• Check the total costs: Since FoFs involve underlying schemes, make sure you read and understand the expense structure before investing.
• Diversify carefully: Make sure to check for overlap between the underlying schemes.
• Check the Riskometer: As per the SEBI mandate, mutual funds are expected to disclose their level of risk through a Riskometer. Check the level of risk involved, and ensure you are comfortable with that level of risk before investing.

All 3 mutual funds give you diversified exposure, but they work differently:

If you are searching for the best Fund of Funds fund, here are a few things to keep in mind:

• Understand the investment objective: Make sure to check if the FoF invests in debt, equity, international, hybrid funds, or other underlying schemes.
• Check the underlying portfolio: Ensure you check which funds your money ultimately goes into.
• Check the expense ratio: FoFs come with expenses at more than one level. Make sure you understand the costs involved.
• Check the risks involved: Study the Riskometer and the risk level of underlying schemes before making your investment.
• Match it with your goal: Make sure your investment horizon, goal, and ability to handle risk match the fund’s strategy.

Investing in Fund of Funds on Millions can be undertaken through the following steps:

• Download the Millions app from the Google Play Store or the iOS App Store.
• Enter your details to create your account and complete your KYC process.
• Log in and search for all available Fund of Funds available on the platform.
• Check the expense ratio, riskometer and other scheme details before choosing your fund.
• Enter the exact amount you want to start investing with, choose your SIP date and complete the payment.