Before deciding to invest in mutual funds, investors often face a dilemma as to which schemes to invest in, and which ones to overlook. Conservative investors usually prefer debt mutual fund schemes over equity schemes, whereas investors with a higher risk appetite opt for equity schemes over former.
At the same time, some investors want to strike a right balance between equity and debt instruments by investing in both via hybrid schemes.
There are seven categories of hybrid mutual funds out of which we will highlight equity savings schemes here.
Equity savings mutual funds are hybrid mutual funds that invest across asset classes including equity, debt and derivatives.
These schemes are supposed to invest a minimum of 65 percent of their assets in equity & equity-related instruments, 10 percent in debt assets, and a small portion in derivatives, as per the Sebi’s categorisation of mutual fund schemes.
Other six hybrid mutual funds are conservative hybrid, balanced hybrid, aggressive hybrid, dynamic asset allocation, multi asset allocation and arbitrage funds.
Equity savings schemes are better than pure equity mutual funds and even aggressive equity schemes since they provide downward protection on account of investment in debt instruments.
Key features of equity savings schemes:
1. Since these funds have some exposure to debt instruments, they provide stability to the returns from these funds.
2. The proportion of equity and debt in the portfolio is mentioned in the scheme information document (SID).
3. Since these are equity hybrid funds, they are ideal for investors who are looking for growth in their investment.
4. These schemes have a higher exposure to equity assets; they are — therefore — considered risky and should be chosen by investors who have a higher risk appetite.
5. It is not incorrect to say that these funds can offer the best of both worlds. They provide safety because of exposure to debt and give a reasonable scope of growth because of higher allocation to equity.
There are 22 equity savings mutual fund schemes with total assets under management (AUMs) of ₹18,962 crore as on July 31, 2023, according to the AMFI data.
Some of the popular schemes in this category include ICICI Prudential Equity Savings Fund (with AUM of ₹6,085 crore), HDFC Equity Savings Fund (AUM of ₹2,885 crore) and Kotak Equity Savings Fund (AUM of ₹2,802 crore).
To sum up, equity savings mutual funds refer to the category of hybrid mutual funds with a mix of different asset classes with equity comprising a minimum of 65 percent of total portfolio. This way, investors can expect their investment to grow while getting downward protection (via debt) at the same time.
