Archive · 13 Jun 2025
Hidden Costs: Fund of Funds Expense Ratio Concerns
Imagine you're buying a box of toys (the FoF), but the box contains other smaller toy sets (underlying funds).
The price you see for the box (wrapper expense) might not include the prices of the smaller sets inside.
This article explains that with fund-of-funds, the cost you see might not be the *total* cost.
Because they invest in other funds, you also pay those funds' fees.
This article suggests making all those fees clear so investors know the full price.
Fund-of-funds (FoFs) often have hidden costs due to the expense ratios of their underlying funds.
Many FoFs only report the 'wrapper' expense ratio, not the total cost including underlying schemes.
This lack of transparency makes it difficult for investors to understand the true cost of FoFs.
Experts suggest standardizing expense ratio reporting to show the total cost to investors.
Current regulations require expense disclosure in some documents, but not always in easily accessible fact sheets.
- Who
- Investors in FoFs, fund managers, regulatory bodies like SEBI, and comparison sites.
- What
- Issues of transparency and hidden costs within Fund of Funds (FoFs) investment schemes related to expense ratios.
- When
- Data fetched on April 30, 2025, with current regulatory information.
- Where
- The article discusses financial practices in the investment market.
- Why
- To highlight the lack of transparency in FoF expense reporting, which may lead to investors unknowingly paying more than expected.
Investors
Fund Companies
Transparency
Investors
Want clear, total expense information.
Fund Companies
May not realize the full cost of their investments.
Expense Disclosure
Investors
Need standardized reporting to make informed decisions.
Fund Companies
Are potentially paying more than they realize due to unclear expense structures.
- FoF Definition
- Invests in other funds.
- TER (Total Expense Ratio)
- Wrapper cost + underlying scheme costs.
- SBI Gold FoF TER (reported)
- 0.1%
- SBI Gold FoF TER (true)
- 0.83%
- DSP Gold FoF TER (reported)
- 0.65%
- Regulatory Requirement
- Disclosure in SID/KIM/KID documents.