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Market Intelligence › Basic Terminologies
The costs of two layers, and when they are justified
Published by The Retail Trader · AUG 05, 2026 · Mutual Funds & AMC
A fund of funds invests not directly in securities but in other funds. That means an extra layer — of management and of cost.
You pay the expense ratio of the top fund, and the cost of the funds inside it has already been deducted from their NAV.
So the total cost is often higher than a direct fund, even if the headline TER looks low.
In some situations this structure is the practical one:
• International exposure, where investing directly is not easy.
• Gold and silver funds, which take exposure only through ETFs.
• Multi asset allocation, where the whole allocation is managed from one place.
• For investors who do not have a demat account.
Before deciding, work out the total cost, not just the top TER. And ask whether the same exposure can be taken directly — if it can, the extra layer should have a legitimate reason.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no guaranteed-return claim, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.