What are Equity Savings Mutual Funds?

How do Equity Savings Mutual Funds Work?

Equity Savings Funds follow a three-pronged investment strategy. A portion of the fund is invested in equities to generate long-term capital growth. Another part is allocated to fixed-income instruments like bonds to provide stability and regular income.

The remaining portion is used for arbitrage, which involves buying a stock in one market and selling it in another to profit from the price difference. This strategy helps generate returns with minimal risk and provides a hedge during volatile market conditions.

Should I Invest in Equity Savings Mutual Funds?

You should consider investing in Equity Savings Funds if you are a moderately conservative investor looking for a better alternative to traditional debt funds. They are ideal if you want to participate in equity market growth but with a safety net.

These funds are suitable for investors with a short-to-medium-term investment horizon, typically around 3 to 5 years. They offer a balanced approach, making them a good option for first-time equity investors or those nearing a financial goal.

How to Choose the Best Equity Savings Mutual Fund for my Portfolio?

To select the right Equity Savings Fund, evaluate its historical performance for consistency across different market cycles. Check the fund's expense ratio, as a lower ratio can significantly impact your long-term returns.

Additionally, examine the fund's portfolio allocation to understand its mix of equity, debt, and arbitrage. Ensure this strategy aligns with your risk tolerance and financial goals. Finally, consider the experience and track record of the fund manager.

What are the Benefits of Investing in an Equity Savings Mutual Fund?

Balanced Risk-Return

Equity Savings Funds offer a blend of growth and stability. The equity component provides the potential for capital appreciation, while the debt and arbitrage portions act as a cushion, reducing overall portfolio volatility.

Tax Efficiency

These funds are treated as equity-oriented funds for tax purposes, as they maintain over 65% exposure to equity and equity-related instruments (including arbitrage). This results in more favourable tax treatment on capital gains compared to pure debt funds.

Built-in Diversification

By investing in a single Equity Savings Fund, you get instant diversification across stocks, bonds, and arbitrage strategies. This multi-asset allocation helps in spreading risk and can lead to more stable returns over time.

Difference between Equity Savings, Aggressive Hybrid and Conservative Hybrid Funds

Equity Savings Funds balance equity, debt, and arbitrage, targeting moderate risk. Aggressive Hybrid Funds are equity-focused (65-80% in stocks) and aim for higher growth with higher risk.

Conservative Hybrid Funds are debt-oriented (75-90% in debt), making them suitable for risk-averse investors seeking regular income. Equity Savings Funds sit in the middle, offering a unique mix for stability and growth.

How much tax do I have to pay on Equity Savings Mutual Funds?

Since Equity Savings Funds invest at least 65% in equity and related instruments, they qualify for equity taxation. Short-term capital Gains (if sold within one year) are taxed at 15%.

Long-Term Capital Gains (if sold after one year) of up to ₹1 lakh in a financial year are tax-free. Any gain exceeding ₹1 lakh is taxed at a flat rate of 10% without the benefit of indexation.

Equity Savings Mutual Funds vs. Other Categories

Compared to pure equity funds, Equity Savings Funds are less volatile due to their debt and arbitrage components, but they may offer lower returns during strong bull markets.

When compared with pure debt funds, Equity Savings Funds have the potential for higher returns due to their equity exposure, but they also carry a higher level of risk. They serve as a middle ground between pure equity and pure debt.

Market & Portfolio Trends

How is the AUM of Equity Savings Mutual Funds Growing?

In the past six months, the ICICI Prudential Equity Savings Fund Direct Growth has led the category in AUM growth, adding an impressive ₹1.12K crore. This indicates strong investor confidence and momentum in the fund.

Stocks Added by Best Equity Savings Mutual Funds

Over the last six months, several top Equity Savings Funds have added Grasim Industries Ltd. to their portfolios. This trend suggests a positive outlook on the stock among fund managers in this category.

Top Exits from Equity Savings Mutual Funds

In a strategic shift, Dabur India Ltd. was exited by 7 out of 23 Equity Savings Mutual Funds in the last six months. This indicates a cautious stance from fund managers, possibly due to changing market valuations or sector outlook.

Equity Savings Funds' Sector allocation

Over the last 6 months, the Equity Savings category has seen an increased allocation towards the Real Estate, Communication, and Energy sectors. At the same time, allocations in Technology, Consumer Defensive, and Securitised assets have decreased.