Not too long after the Union Finance Minister Nirmala Sitharaman removed capital gains benefits from debt mutual funds last month, investors have started to explore alternatives to debt funds.
The alternatives are aplenty and can include equity savings funds which invest in a blend of equity, debt and arbitrage. Before we give the lowdown on these mutual funds, we would first describe what what exactly these funds are.
What are equity savings funds?
Equity savings funds are hybrid mutual funds that invest in equity, debt and arbitrage opportunities. These funds can have around 30 percent of asset allocation to equity, another 30 percent allocation to debt and the remaining (40 percent) to arbitrage opportunities.
For the tax purposes, however, total equity exposure turns out to be around 70 percent (30+40).
And according to the SEBI categorisation rules, equity mutual funds are the ones that invest a minimum of 65 percent of assets in equity & equity-related instruments.
These funds are considered slightly better than pure equity and aggressive hybrid funds since they are slightly safer than the latter as a result of their exposure to debt, and are better than fixed income instruments because of their exposure to equity.
There are a total of 22 schemes in this category with a total AUM (assets under management) of ₹16,012 crore as on March 31, 2023, shows the AMFI (Association of Mutual Funds in India) data.
Some experts tend to recommend these funds as an alternative to debt funds. “From 10-15 years’ perspective, these funds can be considered as an alternative to debt funds. They can generate 10-12 percent post tax returns over a period of three plus years,” says Sreedharan S, Sebi RIA and founder of Wealth Ladder Direct.
He, however, cautions investors to make sure that these funds are a bit risky and investors should invest only when they want to stay invested for a minimum of three years.
Returns in the past one year
With regards to equity savings funds as a category, past one-year-returns stood at 3.21 percent per annum, shows the Morning Star data as on April 18, 2023. Most big mutual fund schemes under this category delivered one-year returns anywhere between 2 to 5 percent, shows the below table.
|Equity savings fund
|AUMs ( ₹crore)
|DSP Equity Savings Fund
|HDFC Equity Savings Fund
|ICICI Prudential Equity Savings Fund
|SBI Equity Savings Fund
|Kotak Equity Savings Fund
(Source: AMFI, regular returns as on April 18, 2023)
For instance, Kotak Equity Savings Fund gave a return of 5.99 percent, HDFC Equity Savings Fund delivered one year return of 4.63 percent and DSP Equity Savings Fund gave a return of 3.93 percent. ICICI Prudential Equity Savings Fund gave a return of 4.89 percent and SBI Equity Savings Fund delivered a return of 2.16 percent.