What Are Equity Savings Funds? Should You Invest in Them?
Equity savings funds are hybrid mutual funds that invest across three main asset classes: equities (company shares), fixed-income instruments (like bonds), and derivatives (used for risk management and hedging). This blend of investments aims to strike a balance between growth and stability. These funds are less risky than pure equity funds while offering the tax benefits of equity investments. Equity savings funds must allocate a minimum of 10% to the debt and 65% to the portfolio’s equity portion, ensuring they benefit from favourable tax treatment under equity taxation rules.
Due to their asset mix, equity savings funds tend to be less volatile than aggressive hybrid funds, providing a safer option for moderate-risk investors while offering better returns than more conservative funds like liquid or debt funds. They are particularly suitable for individuals with short- to medium-term investment goals, such as saving for a vacation, a home renovation, or a significant purchase within a 2- to 4-year period. For those in higher tax brackets (20% or 30%), these funds are a tax-efficient choice, as their equity exposure helps reduce the overall tax liability on returns.
The flexibility of equity savings funds allows fund managers to adjust the allocations between equities, debt, and derivatives based on prevailing market conditions, helping to optimize returns while managing risk. This adaptability can potentially enhance long-term performance even in volatile markets. However, choosing the right fund requires a clear understanding of your financial objectives and risk tolerance.
Equity savings funds can be a balanced choice for those seeking steady returns with moderate risk. Whether you’re planning for retirement, saving for your child’s education, or building an emergency fund, these funds can support your long-term wealth creation goals. However, given their structure and complexity, it’s important to consult an AMFI-registered mutual fund distributor or financial advisor before investing.
A trusted mutual fund advisor or distributor can help assess your risk profile, define financial goals, and select the most suitable fund. Their expertise ensures your investments are aligned with your overall strategy, helping you navigate market complexities and make informed decisions. Working with an expert mutual fund advisor or distributor adds personalized support to your investment journey.
