Equity Savings Hybrid Mutual Funds

What are the features of equity savings funds?

• Minimum 65% allocation in equity and equity arbitrage opportunities

• The volatility risk is quite low, while returns are good

• Suitable for all investment horizons

• Invest through SIPs or lump sum

• Earn tax-free returns up to Rs.1 lakh if you stay invested for 12 months or more

What are the different types of hybrid funds?

How do equity savings funds work?

• Equity savings funds collect investments from different investors and pool them into a corpus

• Fund managers identify equity allocation and allocation to arbitrage opportunities in the equity markets

• The proportion of hedged and unhedged portfolio allocation is specified in the scheme document

• A minimum of 10% of the portfolio is also invested in debt instruments

• Arbitrage opportunities are when the price of an equity security is different in the spot or cash market and the futures or derivatives market

• Fund managers use this price differential to earn returns from arbitrage opportunities

• Equity and debt instruments provide growth through price fluctuations and interest generation

• Risks are low since the price across the spot and futures market would differ even in a bearish market, and debt instruments offer stable returns.

What is the tax implication of equity savings funds?

• Equity savings funds attract equity taxation on the capital gains earned since they primarily invest in equity and its arbitrage opportunities

• Returns up to Rs.1 lakh are tax-free if you stay invested for 12 or more months

• Returns exceeding Rs.1 lakh are taxed at 10%

• For redemption within 12 months, returns are taxed at 15%

• Dividends earned, if any, are taxed at your income tax slab rate

What are the payout options?

• Dividend option

  Earn dividends on your investment at regular intervals

• Growth option

  Accumulate the returns over the investment tenure and get a lump sum amount on redemption

Who should invest in equity savings funds?

• New equity investors

  You can benefit from the low volatility risk and enjoy stable returns

• Investors looking to invest in equity

  The equity savings fund will be a good choice if you want to invest in equity at a reduced risk.

• Investors with a short-term investment horizon

  If you want to invest for a short tenure, equity savings funds can give better returns and tax efficiency than liquid funds