A fund of funds (FoF) is a mutual fund that invests in other mutual funds or ETFs instead of buying shares or bonds directly. You get one holding that gives you exposure to one or several underlying funds. In return you pay two layers of costs, and the tax treatment depends on what the FoF holds.
This guide covers SEBI's rules for FoFs, the main types, what they really cost, how they are taxed for tax year 2026-27, and when they are useful.
What SEBI Requires
Under SEBI's categorisation circular of 26 February 2026, an FoF must invest at least 95% of its total assets in its underlying fund or funds. The rest must not work against the scheme's strategy.
FoFs that invest in more than one underlying fund must fit one of SEBI's standard FoF sub-categories. Existing FoFs had to be re-categorised by 31 August 2025:
| FoF category | Sub-categories and rules |
|---|---|
| Equity-oriented (domestic) | Diversified (underlying funds based on market size, such as large-cap or Nifty 50 funds) or sectoral/thematic |
| Debt-oriented (domestic) | Invests in domestic debt funds of one or more categories |
| Hybrid (domestic) | Aggressive hybrid (65–80% equity funds, 20–35% debt funds); conservative hybrid (10–25% equity funds, 75–90% debt funds); income plus arbitrage (up to 65% debt funds, rest arbitrage funds); dynamic asset allocation; multi-asset (at least 10% each in equity, debt and gold/silver funds) |
| Commodity (domestic) | Gold and/or silver funds |
| Overseas | Country, region or theme-based equity; country or region-based debt |
| Domestic and overseas | Equity or debt, with at least 35% each in domestic and overseas funds |
Each can be offered as an active option (investing in active funds), a passive option (index funds and ETFs) or a mix of both. Names now follow a standard pattern, ending in "Active FOF", "Passive FOF" or "Omni FOF". An FoF with a single underlying fund, such as a gold ETF FoF or an overseas feeder fund, is simply named after what it invests in.
As of August 2026, AMFI listed 152 domestic FoFs with ₹2.31 lakh crore in assets and 52 overseas FoFs with ₹48,548 crore.
The Main Types, With Examples
Domestic FoFs
These invest in Indian funds. Examples include ICICI Prudential Dynamic Asset Allocation Active FOF and HDFC Multi-Asset Active FOF, which combine equity, debt and other funds, and HDFC Gold ETF Fund of Fund, which lets you hold a gold ETF without a demat account.
Overseas FoFs
These invest in funds or ETFs that hold foreign shares. Examples include Motilal Oswal Nasdaq 100 Fund of Fund and Mirae Asset NYSE FANG+ ETF Fund of Fund, which both feed into their fund house's Indian-listed ETF, and Franklin U.S. Opportunities Equity Active Fund of Funds (formerly Franklin India Feeder – Franklin U.S. Opportunities Fund). Not every international fund is an FoF: ICICI Prudential US Bluechip Equity Fund, for example, is a thematic equity scheme that buys US shares directly.
Many international FoFs are closed to new money
The mutual fund industry has an overall limit on overseas investment of USD 7 billion, plus USD 1 billion for overseas ETFs. Because that room is used up, many US-focused FoFs have stopped taking new money. As of September 2026:
- Motilal Oswal Nasdaq 100 FoF has not accepted new SIP registrations or top-ups since 10 December 2024. Existing SIPs continue.
- Franklin U.S. Opportunities suspended lump sums and switch-ins from 8 June 2026 and caps fresh SIPs at ₹50,000 per PAN per month.
Check the fund house's latest notice before planning to invest. Our guide to international mutual funds tracks which funds are open.
What FoFs Really Cost
You pay the FoF's own expense ratio and, indirectly, the expense ratio of the funds it holds. For the popular passive overseas FoFs the wrapper itself is cheap; most of the cost sits in the underlying ETF.
| FoF (direct plan) | FoF TER | Underlying ETF TER | Approximate total |
|---|---|---|---|
| Mirae Asset NYSE FANG+ ETF FoF | 0.04% | 0.55% | 0.59% |
| Motilal Oswal Nasdaq 100 FoF | 0.19% | 0.58% | 0.77% |
| Franklin U.S. Opportunities Equity Active FoF | 0.54% | Plus the underlying US fund's own cost | Higher than 0.54% |
Direct plan total TERs from AMC factsheets and scheme pages, August–September 2026. Gold ETF FoFs typically charged about 0.1% to 0.25% at the FoF level, again before the underlying ETF's cost.
SEBI caps the costs. From 1 April 2026, under the SEBI (Mutual Funds) Regulations 2026, the maximum base expense ratio is 0.90% for FoFs investing in liquid, index or exchange-traded funds, 2.10% for equity-oriented FoFs and 1.85% for other FoFs. Statutory levies are charged on top. Before April 2026 the caps were 1.00%, 2.25% and 2.00%.
Always use the direct plan if you are choosing yourself; our guide to direct vs regular plans shows how much the distributor commission adds over time.
How FoFs Are Taxed (Tax Year 2026-27)
Many articles still say most FoFs are taxed at slab rate. That was the rule from April 2023 to March 2025, when any fund with 35% or less in Indian equity was a "specified mutual fund". From 1 April 2025 the definition was narrowed, and the Income-tax Act, 2025 kept the narrower version (section 76). The tax now depends on what the FoF holds:
| FoF type | Tax treatment |
|---|---|
| Debt FoFs: 65% or more in debt funds (includes conservative hybrid FoFs) | Slab rate on all gains, any holding period, for units bought on or after 1 April 2023 |
| Equity FoFs that put at least 90% into an exchange-traded fund which itself holds at least 90% in Indian listed shares | Taxed as equity: 12.5% on long-term gains above ₹1.25 lakh after more than 12 months; 20% if held 12 months or less |
| Gold and silver FoFs, international FoFs, multi-asset and aggressive hybrid FoFs, and FoFs of active equity funds | "Other funds": 12.5% without indexation if held more than 24 months (no ₹1.25 lakh exemption); slab rate if held 24 months or less |
Add 4% cess and any surcharge. FoFs that sit close to a threshold, such as income-plus-arbitrage FoFs that can hold up to 65% in debt funds, may fall either side depending on their actual mix over the year. The fund's own tax note in its scheme documents is the best guide.
An FoF that invests in active Indian equity funds is not taxed as equity, because it holds fund units rather than shares directly and its underlying funds are not exchange-traded. Holding the same equity funds directly gets equity treatment.
What this means for an international FoF
Illustrative: on a ₹1 lakh long-term gain from an international FoF held more than 24 months, tax is 12.5% = ₹12,500, plus cess (₹500) = ₹13,000, whatever your slab. The same gain from an Indian equity fund could be tax-free if it fits within your ₹1.25 lakh yearly exemption. So the gap is smaller than many older articles suggest, but it is not zero.
More detail is in our mutual fund tax guide.
When an FoF Makes Sense
- International exposure in rupees. An overseas FoF lets you invest from your Indian bank account without using your own Liberalised Remittance Scheme limit or opening a foreign brokerage account. Our guide to investing in US stocks from India covers the direct route.
- Gold or silver without a demat account. A gold ETF FoF is the mutual fund route to a gold ETF: you can invest through a normal mutual fund account. See our guide to gold ETFs for the ETFs themselves.
- Hands-off allocation. Asset allocation and multi-asset FoFs rebalance between equity, debt and gold for you. For people drawing an income in retirement, pairing one with a systematic withdrawal plan is a common approach; the SWP calculator shows how long a corpus lasts at a given withdrawal rate.
When to Think Twice
- You could hold the underlying fund directly. If an FoF holds a single Indian fund or ETF that you could buy yourself, you pay the extra layer of cost for little benefit, and for equity FoFs of active funds you may also lose equity tax treatment.
- The FoF is closed or capped. Many overseas FoFs are not accepting new SIPs or lump sums.
- You want control over rebalancing. An FoF rebalances on its own rules, and each rebalance inside the FoF is not a tax event for you, but you cannot choose the mix.
Before investing, look at the FoF's past returns against its underlying fund's using the mutual fund analyser, which uses AMFI NAVs. For a regular investment plan, the SIP calculator shows how amounts build up over time.