Equity Savings Fund For Stable Returns

The appeal is magnified by the recent changes in taxation of debt funds

- SAIKAT NEOGI

Equity savings funds are gaining popularity among investors, especially those looking for stable returns, because of their unique investment strategy and benefit of equity taxation. These hybrid funds invest in equities, debt securities and arbitrage opportunities to generate capital appreciation, manage risk and enhance returns.

Equity savings funds delegate the decision of optimal asset allocation between debt and equity to professional fund managers and are now increasingly seen as a debt fund alternative. These funds invest 3040% in equities, 25-35% in equity arbitrage, and the rest in debt, offering a balanced risk-reward proposition. Due to this structure, volatility in returns tends to be low though these can be highly volatile during major equity market declines.

Abhishek Banerjee, founder & CEO, Lotusdew Wealth & Investment Advisors, says equity savings funds are required to hold at least 65% equity investment and at least 10% debt. "The fund manager can provide cash market like returns using an arbitrage sleeve, while managing risk using equity and debt sleeves. For example, it might be possible to get government bond yields while using that to generate margins to deploy arbitrage strategies in single stock futures," he says.