Diversification is a protection against ignorance. It makes little sense if you know what you are doing.” — Warren Buffett
In line with the above quote, a Fund of Funds (FoF) is an investment vehicle that pools money to invest in a portfolio of other mutual funds rather than directly holding stocks or bonds. This structure allows investors to gain diversified exposure across multiple funds, asset classes, and geographies while benefiting from professional fund management. AMFI
A focus on the rising popularity of Fund of Funds (FoFs) in India reflects a growing trend among investors seeking diversified, professionally managed investments that simplify exposure to multiple asset classes. The Indian mutual fund industry’s assets under management (AUM) reached ₹68 trillion in 2024, showcasing a sixfold increase over the past decade. Within this, FoFs have gained traction as they cater to both retail and institutional investors, offering ease of diversification across geographies, sectors, and strategies.
The FoFs preference has been further encouraged by the expansion of digital platforms, increased investor awareness, and regulatory backing from the Securities and Exchange Board of India (SEBI). First-time investors and those seeking to reduce risk are especially drawn to the ease of operating a single fund with indirect exposure to several underlying funds. Furthermore, FoFs make it possible to reach international markets, which is an alluring offer considering India’s increasing global economic integration.
Top 10 Fund of Funds with 1-year Return in 2024
| S. No. | Name of the Fund | 1 Year Return (%) | TER (%) | Fund House |
|---|---|---|---|---|
| 1 | Mirae Asset NYSE FANG ETF FoF Growth Direct Plan | 89.01 | 0.72 | Mirae Asset Mutual Fund |
| 2 | Mirae Asset S&P 500 Top 50 ETF FoF Growth Direct Plan | 69.06 | 0.74 | Mirae Asset Mutual Fund |
| 3 | Motilal Oswal Nasdaq 100 FoF Growth Direct Plan | 50.98 | 0.24 | Motilal Oswal Mutual Fund |
| 4 | Union Innovation Opp Growth Direct Plan | 46.83 | 0.78 | Union Mutual Fund |
| 5 | Tata Nifty India Digital ETF FoF Growth Direct Plan | 44.47 | 0.06 | Tata Mutual Fund |
| 6 | Bandhan US Equity FoF Growth Direct Plan | 43.55 | 0.8 | Bandhan Mutual Fund |
| 7 | Nippon India Nifty Next 50 Junior Bees FoF Growth Direct Plan | 43.01 | 0.3 | Nippon India Mutual Fund |
| 8 | Mirae Asset Hang Seng Tech ETF FoF Growth Direct Plan | 42.81 | 0.7 | Mirae Asset Mutual Fund |
| 9 | Edelweiss US Technology Equity FoF Growth Direct Plan | 42.69 | 1.44 | Edelweiss Mutual Fund |
| 10 | Invesco India Invesco Global Consumer Trends FoF Growth Direct Plan | 39.22 | 0.6 | Invesco Mutual Fund |
Source: Kuvera, 15th December, 2024.
As stated earlier, the rising popularity of Fund of Funds (FoFs) in India reflects a significant shift in investor preferences towards diversification and global opportunities. The data highlights how FoFs are delivering strong returns, particularly in international markets, with funds like Mirae Asset NYSE FANG ETF FoF Growth Direct Plan delivering an impressive 89.01% 1-year return and others like Mirae Asset S&P 500 Top 50 ETF FoF and Motilal Oswal Nasdaq 100 FoF providing 69.06% and 50.98% returns, respectively. These funds allow Indian investors to gain exposure to global indices such as the S&P 500, Nasdaq 100, and thematic sectors like technology without the complexities of direct international investing.
By combining several funds, FoFs make portfolio diversification easier while distributing risk across themes and markets. Even while TERs differ from 0.06% for the Tata Nifty India Digital ETF FoF to 1.44% for the Edelweiss US Technology Equity FoF, the expert management and access to international markets make the expense worthwhile. The inclusion of funds like Hang Seng Tech ETF FoF (42.81%) and other thematic options further illustrates investor interest in niche sectors.
Driven by increasing awareness, regulatory support, and the digitization of investment platforms, FoFs are emerging as a strategic tool for hedging domestic risks while tapping into global growth. This trend underscores the principle of “Don’t put all your eggs in one basket”, as investors seek safer and broader exposure to international and thematic opportunities, positioning FoFs as a valuable part of India’s evolving mutual fund landscape.
The Benefits of FoFs in India
Fund of Funds (FoFs) are a popular choice for Indian investors due to their many noteworthy advantages. The key points for considerations are:
1. Diversification
It is one of the main benefits since FoFs spread risk throughout a number of asset classes, markets, and themes by investing in different mutual funds or exchange-traded funds (ETFs). Without having to manage individual funds or equities, this enables investors to obtain exposure to specialised industries like technology as well as global indices like the S&P 500, Nasdaq 100, or Hang Seng.
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2. Expert Fund Management
By providing expert fund management and guaranteeing that portfolios are rebalanced to maximise returns and reduce risk, FoFs also make investing easier. With just one fund, FoFs give novice or retail investors an easy method to access global markets and strategies.
3. Multi-Manager Investment
As a FOF Scheme primarily invests in the units of various other Mutual Fund schemes. Hence, this type of investing is often referred to as multi-manager investment.
4. Hedging Risk
FoFs also help hedge domestic risks and provide opportunities to participate in global market. Although they may carry slightly higher TERs due to multiple layers of management, the benefits of risk management, convenience, and broader exposure often outweigh the costs.
Things You Should Be Careful About Investing In FoFs
It is generally considered that the FoFs are suitable for smaller investors who want to gain access to a range of different asset classes or for those whose advisers do not have the expertise to make single manager recommendations. When investing in Fund of Funds (FoFs), investors should take the following into consideration:
- Investors’ financial goals, risk appetite, and time frame
- Total Expense Ratio and related costs
- Tax Applicability
- Global Risks in case of International FoFs
- The performance of underlying funds
- Liquidity Risk
- Track of regulatory developments
Wrapping Up
Fund of Funds (FoFs) are emerging as a strategic investment option for Indian investors, offering diversification, global exposure, and professional management through a single fund. Despite factors like higher costs, taxation, and currency risks, FoFs enable individuals to participate in global growth opportunities and hedge domestic market risks. By aligning these funds with personal goals and understanding their nuances, investors can make FoFs a valuable part of their portfolio.
As the legendary investor John Bogle said, “Don’t look for the needle in the haystack. Just buy the haystack.” FoFs embody this philosophy, allowing investors to capture broad opportunities with simplicity and efficiency.
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DISCLAIMER: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory.
