Am I paying too much on Expense Ratios?

Zerodha Coin - Direct MF
1

I am investing in Kotak Arbitrage MF which in turn invests in three Kotak MFs equalling 21% of its assets.
Does that mean I am paying expense ratio for those funds in addition to what I hold in the Arbitrage fund?

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2

Yes, but indirectly.

By investing in a fund that invests in other funds, you are indirectly paying more towards expense ratio.

Most FOFs have this cascading effect, where your returns get eaten away by multiple fees by different funds.

FOFs are “infamous,” for their extra layers of fees.You pay not only for the fund in which you’re directly invested, but also for those funds where the asset manager places your capital

The fund u mentioned may not be classified as an FOF, as it also makes investment in stocks separately, but yes, it is partly an FOF as 1/5th gets invested in other MFs.

The net returns from this fund is the Cumulative post-expense return of all the funds in which the investments are made + the return from the stocks.

The fees for a FOF strategy typically involve two layers: the fees charged by the underlying funds and the fees imposed by the FOF manager. For example, if an investor places $10,000 in a FOF with a 1% management fee and the underlying funds collectively charge 2%, the total annual fees might be $298 ($100 for the FOF and $198 for the underlying funds after paying the first fee). This is simplified, but there’s no doubt these fees add up, especially when including performance fees, hurdle rates, and other expenses that could further impact the total cost for the investor.