Domestic equity Fund of Funds (FoF)

A domestic equity Fund of Funds (FoF) is a mutual fund scheme that invests in other Indian equity mutual fund schemes rather than directly in stocks. The category sits within the Fund of Funds framework under SEBI regulations. Domestic equity FoFs are typically used for:

• Asset allocation: Combining equity exposure across multiple managers and styles.
• Multi-AMC diversification: Spreading exposure across different AMCs.
• Single-instrument convenience: For investors wanting one-fund equity allocation.

For Indian retail investors, the trade-off is the double-TER structure: FoF-level TER plus underlying-scheme TER, combined with the equity-vs-debt tax treatment depending on the FoF’s domestic-equity concentration.

SEBI FoF framework

Under SEBI regulations, domestic equity FoFs:

• Invest in domestic equity mutual fund schemes.
• Subject to concentration limits on single underlying scheme exposure.
• Tax classification: As equity-oriented if FoF invests >65 per cent in domestic equity-oriented schemes.

Major schemes

• Aditya Birla Sun Life Asset Allocator FoF.
• Tata Multi Asset Allocation Fund (with FoF structure for portions).
• ICICI Prudential Asset Allocator FoF.
• Various asset-allocation FoFs from major AMCs.

Use cases

Asset-allocation FoFs

The dominant use case: bundling multiple equity fund managers/styles in a single scheme. Investor benefits from:

• Single-scheme operations.
• Pre-configured allocation strategy.
• Periodic rebalancing by FoF manager.

Multi-style diversification

Some FoFs bundle:

• Large-cap fund + Mid-cap fund + Small-cap fund.
• Active fund + Passive index fund.
• Value-style fund + Growth-style fund.

Tax treatment

Equity-oriented classification

Per the SEBI 2023 FoF taxation harmonisation :

• FoFs investing >65 per cent in domestic equity-oriented schemes: Treated as equity-oriented.
• LTCG (>12 months): 12.5 per cent above Rs 1.25 lakh annual exemption under Section 112A .
• STCG (≤12 months): 20 per cent under Section 111A .

Below 65% domestic equity

If the FoF holds <65% domestic equity (e.g., mixed equity + debt), the FoF is treated as debt-oriented for tax under post-2023 framework .

Double-TER consideration

Domestic equity FoFs face:

• FoF-level TER: 0.50-2.00 per cent.
• Underlying scheme TER: 1.00-2.00 per cent.
• Combined: 1.50-4.00 per cent.

This is significantly higher than direct equity-fund subscription (single TER).

Comparison with direct equity-fund subscription

For most retail investors with capacity to manage multiple funds, direct subscription is more cost-efficient than FoF.

Role in portfolios

Domestic equity FoFs suit:

• Investors wanting simplification: Single-fund equity allocation.
• Asset-allocation simplicity: Pre-configured equity/debt mix.
• Investors who don’t manage multiple funds.

Less suitable for:

• Cost-sensitive investors: Double-TER drag.
• Investors with active fund-management preferences: Limited control.

See also

• Mutual funds in India
• Fund of Funds
• International equity FoF
• Gold FoF
• Debt FoF
• Multi Asset FoF
• Equity mutual fund taxation in India
• SEBI FoF taxation harmonisation
• TER regulation and slabs
• Multi Asset Mutual Fund
• Balanced Advantage Fund

External references

• SEBI
• AMFI India

References

1. SEBI October 2017 categorisation circular.
2. Finance Act 2023 FoF taxation harmonisation.
3. AMFI scheme data on FoFs.