Assess true cost: Add up expense ratio of FoF and underlying funds

Understand the risks of the underlying funds and whether their strategies match your objectives

A recent report from DSP Mutual Fund highlights the lack of transparency in how fund of funds (FoFs) disclose total expense ratios (TERs). While some disclose the expense ratio of both the wrapper and the underlying funds, others do not, making it hard for investors to gauge actual costs.  How FoFs work  An FoF invests in other mutual funds instead of directly holding stocks, bonds or other assets. “FoFs could also act as a feeder fund into another fund, such as an exchange-traded fund (ETF),” says Chirag Mehta, chief investment officer, Quantum Asset Management Company. Depending