Fund of Funds are mutual fund schemes that invest in other MF schemes. FoFs can be used to meet different investment objectives. For example, an FoF investing in an international scheme gives investors geographical diversification. Similarly, an FoF investing in a bunch of domestic mutual fund schemes can be used for diversification. However, keep in mind that FoFs, except those investing in domestic-listed equity exchange traded funds, get treated as debt investment for taxation. To be eligible for lower long-term capital gains (LTCG) tax, you will need to hold FoF for at least three years. That will make you eligible for an LTCG tax of 20% with indexation benefit (inflation-adjusted gains).