Funds of Funds (FOFs), also called Multi Funds (or multi-funds), are a type of multi-manager fund. FOFs are mutual funds that invest in other mutual funds instead of in individual stocks and bonds. In this case, the fund is called a mutual fund FOF. FOFs can benefit those investors who want less risk and greater diversification. FOFs can also be made up of hedge funds, private equities, or investment trusts, for which they are called hedge fund FOFs, private equity FOFs, or investment trust FOFs, respectively.

Portfolio diversification is a major advantage of mutual fund FOFs. They allow investors to participate in hundreds of securities, which lessens the investor's risk even more than regular mutual fund investing. However, depending on the fund, FOFs may have a higher cost. Investors usually have to pay twice for fund management fees – once to the main mutual fund and again to each component fund. However, as with typical mutual funds, there are no trade fees associated with the funds since they do not trade like stocks.

An additional investment tool is a fund of hedge funds. This fund invests in hedge funds instead of in individual stock and bonds. Advantages of these funds are that they require much lower minimum investments than individual hedge funds. Another advantage is that investors are exposed to different hedge fund managers and to different investing strategies. Investing in a FOF also can open the door to being able to invest in a particular hedge fund that has been closed to new investors. A disadvantage of a fund of hedge funds is the fund fees, which include annual management and performance fees. These fees are charged for the fund of the hedge fund in addition to the underlying hedge fund or funds.

An investor should contact his brokerage to find out what funds are available. Choosing a fund will also depend greatly on the investor's investment strategy. Most brokerages should have basic FOFs. In contrast, funds of hedge funds may be more difficult to find. Goldman Sachs, Bear Stearns, and Merrill Lynch (a subsidiary of Bank of America) are a few brokerages where funds of hedge funds may be available.