Fund of Funds Explained: Easy Global Diversification with SIP in Mutual Funds

Featured Snippet:
Fund of Funds (FoFs) invest at least 95% in other mutual funds, giving you instant diversification across strategies, geographies, or asset classes—all in one click.

Let’s face it—most of us want global exposure or tactical diversification, but the idea of researching dozens of funds or figuring out international investing feels… well, a bit overwhelming.
You think, “Should I invest in U.S. tech? What about emerging markets? Wait—what's a bond ladder again?” Before you know it, you're back to scrolling Instagram.

That’s where Fund of Funds, or FoFs, come in like that friend who just says, “Relax, I’ve booked everything—just pack your bags.”

So, what exactly is a Fund of Funds?

At its core, a Fund of Funds is a mutual fund that invests in other mutual funds, not in stocks or bonds directly.
They’re like curated playlists of investments—handpicked by experts for a particular theme, goal, or strategy.

Some FoFs focus on domestic diversification (across sectors or styles), while others give you exposure to global markets, such as the U.S., China or may be a global equity funds in Europe.
And the best part? You don’t need a DEMAT account, forex conversion, a passport or an economics degree. Just one SIP—and boom, you’re globally diversified.

How do they actually work?

Here’s the magic: FoFs invest at least 95% in one or more underlying mutual funds.
Think of it like this: Instead of cooking multiple dishes yourself, you’re ordering a one pot where everything’s already perfectly portioned. The FoF manager selects and monitors those underlying funds, adjusting allocations if needed.
You just sit back and enjoy the experience.

And if you’re investing in international FoFs, you get the added spice of foreign equity exposure—without worrying about currency transfer rules or taxation nightmares.

In my experience…

Clients who love the “I want everything in one fund” approach or those curious about global investing tend to find FoFs super handy.

One of my clients, for example, wanted exposure to U.S. tech giants but didn’t want to track Nasdaq every night. We set up an SIP in an international FoF tracking a U.S. index. Now, every time there's a global rally, she proudly says, “My portfolio went international before my passport did!”

Are there limitations? Of course.
The expense ratio includes fees for both the FoF and its underlying funds. For many investors, the convenience and diversification these funds offer are worth it, even with a few downsides.

FAQs

Q1. Can I do an SIP in a Fund of Funds?
Absolutely! In fact, SIPs work really well with FoFs because they smoothen out volatility, especially in global markets.

Q2. Are international FoFs taxed differently?
Yes—they’re taxed as non-equity funds in India, which means debt fund tax rules apply. So, long-term gains after 3 years qualify for indexation benefits.

Q3. Can I lose money in a FoF?
Yes—since FoFs are market-linked, they can go up or down. But the diversification helps reduce risk compared to investing in a single fund or stock.

Quote to Remember:

“Diversification is the only free lunch in investing.”
— Harry Markowitz, Nobel laureate & father of Modern Portfolio Theory

So, what now?

If you’re someone who wants global exposure, automated diversification, or just an easier way to access multiple strategies in one fund—FoFs might be worth a look.

They won’t replace every fund in your portfolio, but they can definitely complement your core holdings—like the travel adapter you didn’t realize you needed until your charger didn’t fit abroad.

So… when the market zigs or the world economy zags, ask yourself:

“Is my portfolio traveling smart?”