equity saver hybrid funds
Equity saver hybrid funds invest the corpus amount in equity funds, debt funds, and also arbitrage. These are relatively new investment avenues that were introduced in the Indian money market. The main purpose of the funds is to diversify the investments such that it neutralises the volatility pertaining to the stock market.
Equity Savings Fund follows an investment pattern that is very different from the traditional investment schemes. Nearly 30-35% of the total investment corpus of these funds is invested in equity assets while the remaining is invested in debt income funds and arbitrages.
ESS is somewhat similar to balanced funds as far as operations is concerned, but with an added advantage of an arbitrage fund. Since these funds invest in a combination of segments, they help in maximising returns on investments while ensuring a smart risk and reward balance.
This savings scheme is an ideal option for conventional investors who wish to make high returns from their investments while gaining capital to meet short-term goals.
The diverse compositions of these mutual funds cater to different needs. For instance, the equity component prevents the purchasing power erosion of an investor. Debt and arbitrage on the other hand, act as a cushion against downside risks of market fluctuations.
Let’s understand this with an example.
Assume that an investor has invested in an Equity saver hybrid fund for six months and the portfolio has since shed approximately 10% of it’s value. If the debt component generates 6% annual returns and the arbitrage fetches 6.5% returns, then the investor’s loss is minimised to that extent.
Hence, cumulative returns generated by an ESS only reduce marginally even in case of a 10% market decline. In case of balanced funds or equity market schemes, there are higher chances of negative returns depending on the type of stocks in the portfolio.
The equity composition of equity saver hybrid funds, along with the derivative exposure, is together considered as equity allocations.Therefore, these funds form part of equity assets for taxation purposes.
The long-term capital gains from equity mutual funds and stocks are tax free if the quantum of gains is less than Rs. 1 Lakh in any Financial year. This corpus of capital gain is taxed at a rate of 10% if gains are over Rs 1 lakh in a year. To qualify for long term capital gains, the holding period of the investments should be 1 year.
However, if the investor holds the funds for less than 12 months, the tax implication will be according to the short-term capital gains order, i.e., at the rate of 15%.
These schemes are ideal investment options for investors who want some equity exposure but do not have a long-term investment horizon. These are low-risk funds designed to fetch certain returns, unlike equity assets. Some of these funds also offer dividend incomes on a regular basis, although they are not mandated for the same.
Investors who do not wish to face the risks associated with volatility of an equity money market can invest in equity savings mutual funds. These schemes are meant for investors trying to deviate from conventional investment and savings options.
However, before investing, an investor should note that these funds do not act as substitutes for other funds that have pure equity holdings, especially focused on long-term investment portfolios.
Some of the noteworthy benefits to be availed from equity saver hybrid funds are:
Since more than 50% of the funds are allocated between debt and arbitrage instruments, these funds offer more stable returns as compared to pure equity holdings. To reduce the impact of volatility in these funds, fund managers often use various derivative strategies. The arbitrage portion of the fund is helpful in capitalising the inconsistencies of fund prices across different market segments.
Since equity saver hybrid funds are treated as equity funds with regards to taxation, the tax liability on this investment is considerably reduced. If an investor holds this fund for more than 12 months, returns below Rs. 1 lakh are exempt from taxation.
However, investors must note that any redemption of gains from these funds before completion of 1 year is taxed at 15%.
The arbitrage portion of these funds comes with the biggest advantage of ensuring stable returns. Most fund houses carry experience of handling arbitrage that fetches low-risk returns. Thus, these funds are an option for those looking for a stable return on investments.
These funds offer a diverse investment portfolio within a single investment avenue. Thus, investors need not analyse different fund performances to select the best suited one. They can simply invest in ESS and rely on asset managers to handle the investment selection.
However, investors must remain invested in these funds for over 12 months, since early redemption could mean an exit load charge of 1%.
Here are some of the aspects that investors should note before considering investment in equity saver hybrid schemes:
Some of the equity saver hybrid fund recommendations for 2023 are:
The scheme’s objective is to provide capital appreciation through investments in equity & equity related instruments, arbitrage opportunities, and debt and money market instruments. The fund has invested 65.6% of assets in Indian stocks of which 49.7% is in large-cap stocks, 3.92% is in mid-cap stocks, 7.93% in small-cap stocks. 27.13% of the assets are invested in debt, of which, 8.97% in government securities. 18.16% of the fund is invested in very low-risk securities.
| Inception Date | Jan 1, 2013 |
| Benchmark Name | NIFTY Equity Savings Total Return Index |
| Fund Manager | Gopal AgrawalKrishan Kumar DagaAnil BamboliArun Agarwal |
| Expense Ratio | 1.26% |
| 1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
| 17.91% | 13.20% | 11.11% | 10.80% | 10.43% |
The scheme aims to generate income through investment in arbitrage opportunities, specifically in cash and derivatives instruments of the equity market. It seeks to generate capital appreciation through moderate equity exposure. The fund has 66.34% investment in Indian stocks. Of this, 55% is invested in large-cap stocks, 4.72% is in mid-cap stocks and 2.61% in small-cap stocks. 14.65% of the fund’s corpus is invested in debt, of which 1.49% is in government securities and 13.16% in very low-risk securities.
| Inception Date | May 27, 2015 |
| Benchmark Name | NIFTY Equity Savings Total Return Index |
| Fund Manager | Mansi SajejaRuchit MehtaNeeraj Kumar |
| Expense Ratio | 0.63% |
| 1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
| 14.10% | 12.88% | 12.08% | 10.92% | 9.94% |
The scheme aims to provide investors capital appreciation and regular income through investments in equity and equity-related instruments, exploring arbitrage opportunities and investing in debt and money market instruments.
| Inception Date | Oct 13, 2014 |
| Benchmark Name | NIFTY Equity Savings Total Return Index |
| Fund Manager | Dhawal DalalBharat LahotiBhavesh Jain |
| Expense Ratio | 0.62% |
| 1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
| 13.17% | 13.35% | 11.63% | 11.22% | 9.57% |
The scheme aims to provide capital appreciation and regular income through investments in equity and equity-related instruments. It also aims to explore arbitrage opportunities. Some of the fund’s corpus is also used for investing in debt and money market instruments.
| Inception Date | January 02, 2013 |
| Benchmark Name | NIFTY Equity Savings Total Return Index |
| Fund Manager | Sudhir KediaGurvinder Singh Wasan |
| Expense Ratio | 0.85% |
| 1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
| 19.80% | 17.53% | 13.77% | 12.08% | 9.43% |
Before investing in any equity saver hybrid fund, an investor should look at the specific fund’s historical performance, fund manager profiles, AUM, expense ratio, etc to gauge its suitability against personal financial goals. It is equally important to check various fund categories before making a specific selection.
An investor can invest in equity saver hybrid funds through the Fisdom app. This app can be easily downloaded on the investor’s smartphone for a seamless invest experience while exploring various other mutual fund categories.
Fixed deposits earn a fixed return on investment as compared to equity saver schemes that offer higher chances of generating better returns.
Mutual funds come with different risk profiles, depending on the asset allocation strategy and fund objective. An investor must check for the fund’s risk category before making an investment decision.
Equity or stocks are ideal for seasoned investors who are well versed with market fluctuations. Mutual funds, on the other hand, can be opted by new investors who can choose an investment as per their risk appetite.
One must choose a mutual fund based on historical returns, fund manager profile, fund objective, risk and return characteristics, etc. All these parameters, when weighed against individual objectives, can help an investor make a wise investment decision.
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