Best Fund of Funds to Invest  – Complete Guide for Beginners

Investors looking for diversification without the hassle of selecting multiple mutual funds often turn to Fund of Funds (FoFs). These schemes invest in a portfolio of other mutual funds, giving you broad exposure across asset classes, fund houses, and geographies. But the key question is: Which are the best fund of funds to invest?

In this article, we will explain what fund of funds are, their features, benefits, risks, and list the best fund of funds in India that you can consider.

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What is a Fund of Funds?

A Fund of Funds (FoF) is a type of mutual fund scheme that invests in other mutual funds rather than directly in stocks, bonds, or other securities. It provides instant diversification, professional management, and access to a variety of asset classes.

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Features of Fund of Funds

• ✅ Diversification: Exposure to multiple funds and asset classes.
  
• ✅ Professional Management: Managed by expert fund managers.
  
• ✅ Flexibility: Available in equity, debt, international, commodity, and hybrid categories.
  
• ✅ Systematic Investment: Allows SIP investments starting as low as ₹500.
  

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Benefits of Investing in Fund of Funds

1. One-stop diversification – You get exposure to multiple schemes through a single investment.
   
2. Global opportunities – Many FoFs invest in international funds, giving you access to global markets.
   
3. Easy management – Instead of monitoring multiple funds, you track only one FoF.
   
4. Lower entry barriers – Suitable for beginners who want diversification with small investments.
   

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Risks of Fund of Funds

• ❌ Higher expense ratio – Since you pay fees at two levels (FoF + underlying fund).
  
• ❌ Tax treatment – Treated as debt funds in India, irrespective of the underlying asset.
  
• ❌ Over-diversification – Returns may get diluted if too many funds overlap.
  

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Available Fund of Funds

Fund Name	Category
Motilal Oswal Nasdaq 100 FoF	International Equity
Nippon India US Equity FoF	International Equity
ICICI Prudential Asset Allocator FoF	Dynamic Asset Allocation
Parag Parikh Conservative Hybrid FoF	Hybrid
SBI Equity Hybrid FoF	Balanced

(Data indicative; check latest performance before investing.)

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Who Should Invest in Fund of Funds?

• Beginner investors seeking instant diversification
  
• Investors who want international exposure
  
• Those preferring asset allocation strategies without rebalancing themselves
  
• Risk-averse investors who want balanced growth with safety
  

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FAQs

1. Are Fund of Funds good for beginners?
Yes, FoFs are beginner-friendly as they offer diversification and professional management in one product.

2. How are Fund of Funds taxed in India?
FoFs are taxed like debt funds, regardless of the underlying asset. Long-term capital gains (after 3 years) are taxed at 20% with indexation.

3. Can I start an SIP in a Fund of Funds?
Yes, most FoFs allow SIPs starting from ₹500, making them suitable for regular investors.

4. Are international Fund of Funds risky?
Yes, since they are exposed to foreign markets, they carry currency risk and global market risk.

5. Which is better – Fund of Funds or direct equity mutual fund?
If you want convenience and diversification, choose FoFs. If you can manage and analyze funds yourself, direct equity mutual funds may be better.

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Conclusion

The best fund of funds offer a simple way to diversify across multiple schemes and even global markets. However, investors should carefully evaluate expense ratios, tax implications, and risk levels before investing. For long-term wealth creation, SIP in a top-performing FoF can be an effective strategy.

Disclaimer:- Mutual Fund Investments are subject to market risks, please read scheme related doucments before investing.

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📅 Last Updated on: September 2, 2025

• Sushil Bajaj
• September 2, 2025