fund of funds

A mutual fund that invests in other mutual funds. The logic behind a fund of funds is that the fund of funds will maximize investors’ returns by knowing which fund is performing the best. A fund of funds also can offer additional diversification. However, a fund of funds assesses a fee on the funds under its management, which the fund investor pays in addition to the fees assessed by the underlying funds. Some have criticized a fund of funds as doing nothing more than just adding an extra layer of management fees.