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Equity Savings Mutual Funds

Equity Savings Mutual Funds

Equity savings mutual funds fall under the category of hybrid funds in which the returns are generated by investing in debts, equity and arbitrage opportunities. These are invested across sectors that are well-researched and generate higher returns with better tax efficiency as compared to bank deposits.

Offer better diversification of portfolios

Comes with better tax efficiency

Investors can enjoy the benefit of arbitrage

Offer more stable returns compared to pure equity holdings

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What are Equity Savings Mutual Funds?

Equity savings mutual funds are hybrid funds, where the total amount of investment is invested between debt, equity and arbitrage funds. Comparatively newer to the Indian money market, this scheme allows diversification of funds that help neutralise the volatility of the stock market. Thus it also mitigates the risks associated with it to some extent.

Equity saver funds follow a unique investment pattern as compared to other traditional investment schemes. In an equity saving scheme, almost 30% - 35% of the total investment fund is invested in equity assets, and the rest of it goes to debt income and arbitrage.

Why Equity Savings Mutual Funds to Your Portfolio?

Some pointers to consider why adding equity savings funds to your investment portfolio can be beneficial are discussed below.

As an investor, you can get exposure to equity stocks up to 30%.
You can get tax-efficient returns as compared to traditional bank fixed deposits.
These are ideal for investors with two to three years of investment horizon.
You can also get risk-free returns by selling and buying stocks.

What are the Advantages of Investing in Equity Savings Mutual Funds?

Given below are some of the advantages of investing in equity savings mutual funds.

Reduced Volatility
With equity savings funds, since the investment fund is distributed in certain proportions to other holdings, investors can get a stable return as compared to pure equity holdings. Fund Managers can also use derivative strategies to reduce volatility, while the arbitrage portion provides opportunities to capitalise through inconsistencies in various parts of the market.
Diversified Portfolio
Investors can get a diverse portfolio for their investment with top equity savings funds, through a single investment channel. Hence, there is no need to analyse the past performances of various funds for investors. You can just select one to invest and let the fund managers go through the selection of funds.
Tax Efficient Benefits
The tax liability on equity savings mutual funds is lower than other schemes since these are treated as equity funds for taxation. Hence, investors who would hold their funds for over 12 months are exempted from taxation up to Rs. 1 Lakh. However, you must also remember if you redeem the gains before 12 months, you will be taxed at the rate of interest which may vary from fund to fund.
Better Liquidity
There is no lock-in period in the case of equity savings mutual funds. Hence, you can redeem your funds anytime within the market hours, offering you better liquidity. However, these funds are meant to be held for at least 12 months from the date of purchase.
Growth of Capital
The equity component offers growth and appreciation of capital. However, since there is an arbitrage component to it, the upside is constrained but that also means that the risk is also limited.
Easy to Invest
Equity Savings Funds are easy to invest and an individual can even invest through SIP. They can choose to invest weekly, bi-weekly, monthly, or quarterly with any denomination of their choice.

Who Should Consider Investing in Equity Savings Mutual Funds?

Given below are some of the categories of investors who should consider investing in equity savings mutual funds.

Investors Having a Short to Medium Term Investment Horizon
Since equity savings are invested in equity, you need to invest them for a considerable period to witness a potentially higher profit. It is because the fund manager invests your funds in several stocks, and the market can act differently at times, affecting your returns. So, if you are willing to invest for a tenure of 3 to 5 years, then this fund is the most suitable.
Investors Seeking Potentially Low-Risk Options
The risks associated with equity savings mutual funds are comparatively lesser than other mutual fund schemes like pure equity. This is because the funds are invested in proportion to equity, debt and arbitrage, hence it does not get enough room to get affected by the market fluctuations in the long run. So, it can be a suitable option for investors looking for lower risks within a diversified investment scheme.
Investors Looking for Diversification in Investment
Since through equity savings funds, you can invest across diverse categories of market capitalisation, it allows investors to enjoy the benefit of diversification. It lets you capitalise on the opportunities from both equity and debt income funds. Hence these can promise you stable returns in the long run. So this can be a good option for investors looking for their fund's portfolio diversification.
Investors with Some Investment Experience
Equity savings is a hybrid investment scheme which involves investments in equity and debt income. Hence, it will be an ideal option for investors with some experience in investments. It is so since there can be volatility chances or a higher expense ratio involved based on your short to long-term investment horizon.
Investors Looking to Create Retirement Corpus
If you are someone looking to invest in such funds that can act as your retirement corpus, then an equity savings fund is a good choice. You can invest your money for a certain duration and use the returns as your requirements fund, thus having good savings for your future.
Investors Looking for Alternative to Traditional Fund Options
As an investor, there can be circumstances where you do not want to invest in traditional investment options such as fixed deposits. Equity savings mutual funds can be a great alternative in such scenarios, especially if you are willing to take moderate risks and be patient to get high returns after investing the money for a moderate time period.

What are the Points to Consider Before Investing in Equity Savings Mutual Funds?

Make sure you know some key factors to consider before you start your investment journey with us in equity savings mutual funds. Below are some key pointers given to consider.

Financial Goals
You must opt for equity savings funds only after assessing your financial goals, including the investment horizon. Since these funds are invested in diverse markets, they can experience market volatility if done for a short duration. A medium to long-term (minimum two years) investment horizon can help you get the best results.
Risks
Investors must know that the risks associated with equity savings call for investors with risk appetite. Even though the possibilities of risks with equity savings are lower, it is entirely risk-free. This is because these funds are exposed to equity in some proportion, which can affect the returns due to market fluctuations. So it is recommended to be cautious and explore your investment portfolio to look for opportunities to minimise risks.
Returns
Investors must assess the returns they would get from investing in equity funds. This is because these funds tend to be subjected to various market conditions. Hence in case of market downswings, investors might not get the returns they would expect. On the other hand, if the majority number of invested stocks perform well, the returns might be profitable.
Cost
It is also crucial to consider the costs associated with equity savings investment before putting your money in them, which includes the expense ratio. These are the prices required to manage your investment and the tax charged on your profit.
Exit Load
In case of investing in equity savings funds, you must keep in mind the exit load charges as well. Exit load is the charge that you have to pay if you withdraw your money before the lock-in period is over. But keep in mind that the lock-in period and charges differ from one company to another.
Fund Manager
Choosing an experienced fund manager to build your portfolio becomes an important point of consideration. An experienced fund manager uses their expertise to invest their money in funds that have good performance in the market or have the potential for high returns.

What are the Limitations of Investing in Equity Savings Mutual Funds?

There are a few limitations to investing in equity savings mutual funds which are as follows:

High Expense Ratio
The expense ratio for equity savings tends to be on the higher side. Since the fund managers need to constantly monitor the performances of stocks to invest in them, it requires active management skills of the asset managers. Hence, the expense ratio can be a little higher for their expert management.
Risk of Inflation
In the case of equity savings mutual funds, the risk of inflation is high and can significantly impact the returns. These funds can at times fail to go with the market inflation pace and can be disadvantageous for the investor, especially if the expected return from the investment's debt portion is lower than the increase in the cost of living.
Overload of Choices
There are thousands of equity schemes in mutual funds, from which investors have to make choices based on their financial goals. Hence, it can be sometimes challenging to make the right choice out of the vast spectrum of equity schemes. Therefore, investing in equity savings requires the utmost attention.

How to Invest in Equity Savings Mutual Funds Through IND Money?

Once you have understood the pros and cons of equity savings mutual funds, you need to know how you can start your investment with INDmoney. You can proceed by following the given steps, to start your mutual fund investment journey with us:

Step 1
Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).
Step 2
Once your Free investment account is ready, you can either search for Equity Savings Mutual Funds or go to the mutual fund section and tap on Hybrid Funds Catalog.
Step 3
Choose an Equity Savings Mutual Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.
Step 4
You can choose to set up SIP in Equity Savings Mutual Funds or even invest as lumpSum. Once you are on the individual Equity Savings Mutual Funds page click from the bottom “One-time” for lump sum investment or “SIP” for systematic investment plan.
Step 5
Choose the amount that you want to invest as SIP or LumpSum.
Step 6
Set up payments. If you choose to set up SIP in Equity Savings Mutual Funds, you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.

Should You Invest in Short Duration Mutual Funds?

While the objective of equity savings mutual funds is to provide capital appreciation through a hybrid investment strategy, investors with both low and moderate risk appetites are the ideal ones for these. Even though these funds claim to be on the lower risks side, you can assess and research the best equity savings schemes through IND Money. Once you assess your financial goals, if it aligns with your requirements you can download the IND Money app and start your investment journey with us today.

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Frequently Asked Questions

Equity savings mutual funds are the best option if you are looking for short-term investment opportunities. Since, investors would be holding their funds for a short period of time, and can enjoy diversification across sectors, these would be less exposed to market fluctuations, hence mitigating the risks associated with it.

Investors can invest in equity savings mutual funds for more than five years. However, keeping the money for at least 2 years is considered feasible.

Investors who would consider investing in short-term equity savings funds can be volatile can surely invest in the long-term one. Investors with a long-term investment horizon can have the potential to get higher returns in the long run.

Yes, you can withdraw money from equity savings mutual funds anytime if you invest in open-ended schemes. There are no restrictions on withdrawing these as long as they are invested in open-ended, be it debt or equity.

Equity savings funds are invested across different markets and sectors. These funds can also be invested by using derivatives to mitigate the risks involved and enjoy the benefits of market opportunities.

The minimum amount one should invest in equity savings mutual funds can vary from investor to investor. This is because it depends on the investor’s risk profile and financial goals. However, it is desirable to start investing with a lesser amount to endure the risks without affecting your finances much. You can increase the amount of funds you invest as you gain experience.

Traditional bank fixed deposits generate fixed returns on your investment. On the other hand, you will have the chance of getting higher returns on your investment with equity savings funds. So if you compare the two, equity savings funds are a better option than bank fixed deposits.

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