Want to beat inflation but still sleep soundly at night? Well, equity savings funds might be the answer. These hybrid funds offer a balanced approach to strike a balance between growth and stability.
But wait… what sets them apart from other hybrid funds? Give a read to this comprehensive article to get answers to questions like this. Let’s start!
What Are Equity Savings Funds?
Equity savings funds are hybrid funds that invest in a well-balanced mix of equity, debt, and arbitrage opportunities. The investment is distributed almost equally among these asset classes. This diversification helps to mitigate volatility.
What Does It Mean By Arbitrage Opportunities? Arbitrage opportunities refer to the chance to make a profit from the price differences of a financial instrument in different markets.
How Do Equity Savings Funds Work? Fund managers create a portfolio with stocks, debt instruments, and (potentially) arbitrage opportunities. The allocation is often balanced to provide a mix of growth potential and stability. Additionally, The fund identifies and takes advantage of arbitrage opportunities.
Features Of Equity Savings Funds
Let’s discuss some important features of equity savings funds also known as equity savings schemes.
- A Portion of Equity Investments: These funds allocate a significant portion to equity investments, aiming to provide the fund with growth potential.
- A Portion of Debt Investments: Debt investment in equity savings funds is intended to contribute stability and regular income to the fund.
- Arbitrage Opportunities: Arbitrage opportunities in equity savings funds are harnessed to capitalize on price differentials, enhancing the fund’s overall returns.
- Professional Management: These funds are professionally managed by experienced fund managers. Their expertise is crucial in making informed investment decisions.
- Lower Volatility: The combination of diversified asset allocation and active management may contribute to lower volatility compared to investing solely in equities.
Let’s discuss some important points related to these funds to help better understand them.
- These funds heavily rely on the expertise of managers.
- While some ESFs (Equity Savings Funds) might utilize arbitrage, it’s not their primary focus and its usage depends on the specific fund’s strategy and regulations.
- ESFs may incorporate elements of capital preservation, particularly through debt investments, aiming to safeguard investors’ capital to a certain extent.
- Like other mutual funds, ESFs have expense ratios that cover the costs of fund management. Investors typically assess these fees when considering the overall attractiveness of the fund.
- These funds typically provide transparent and regular reporting to investors, keeping them informed about the fund’s performance, holdings, and any changes in strategy.
Who Should Invest?
Based on the features and portfolio allocation, the following types of investors may find these investments helpful. However, self-assessment is required to determine whether an equity savings fund aligns with specific needs and objectives.
A. Investors With Low-Risk Tolerance: Investors who have a low-risk appetite may prefer investing in equity savings funds for different investment goals.
B. Conservative Investors Who Seek Lower Volatility: Many investors seek lower volatility along with some equity exposure. These funds may favour them.
C. Investors Who Want Diversification: These funds offer a well-diversified portfolio under one investment vehicle. This makes these funds attractive to investors seeking diversification in their investments.
How to invest in equity savings funds?
Investment in mutual funds is only a few steps away. Here are the steps:
A. Register with any reputed online investment platform/mutual fund company
B. Open an account & complete KYC
C. Select a mutual fund of your choice
D. Choose the mode of investment i.e. lumpsum or SIP Investment
E. Make the payment
F. Review the performance periodically.
How are equity savings funds taxed in India?
Equity savings funds are taxed like regular equity funds in India.
1. For units sold before a year: 15% of the profits
2. For units sold after a year: 10% of the profits above 1 lac
Note– This guide is for educational purposes and should not be considered investment advice.