What Are Equity Savings Mutual Fund Schemes?

6 mins read
by Angel One
Equity Savings Mutual Fund Schemes are a popular investment option among investors who seek a balanced portfolio of equity, debt, and arbitrage opportunities. In this article, we will delve deeper int

Equity Saving Schemes (ESS) are mutual funds that make investments in a combination of equities, debt, and arbitrage opportunities. The distribution of funds among these three asset classes might change based on the state of the markets and the fund’s investment strategy. These funds typically allocate up to 30%-35% of the total investment in equity assets while the rest are invested in debt income funds and arbitrages. To manage risk, ESS funds invest in a diversified portfolio of equity and debt instruments with the primary goal of generating consistent returns. With exposure to debt and arbitrage opportunities, these funds also seek to offer investors some degree of downside protection. Some popular equity savings scheme funds in India include HDFC Equity Savings Fund, ICICI Prudential Equity Savings Fund, and Aditya Birla Sun Life Equity Savings Fund, among others. It is recommended that investors consult with a financial advisor before making any investment decisions.

Purpose Of Equity Savings Funds And How It Works

Equity savings funds aim to provide investors with the dual benefits of capital appreciation and income generation while also managing risk. The objective of an equity savings fund is to generate returns that are higher than traditional fixed-income investments while also providing some downside protection during market downturns. In India, equity savings funds are popular among retail investors who seek a balanced portfolio of equity and debt investments. These funds typically invest a minimum of 30% of their assets in equity and equity-related securities, with the remaining portion invested in debt and money market instruments. The equity component of the fund may be invested across sectors and market capitalisation, providing diversification and reducing the risk of concentration in any one segment. The debt portion of the fund may include fixed-income securities such as corporate bonds, government securities, and money market instruments. These securities help provide a regular income stream to the investor while also reducing overall portfolio volatility. In addition to equity and debt investments, equity savings funds also employ arbitrage strategies. Arbitrage involves buying and selling the same asset in different markets to take advantage of price discrepancies. This strategy helps to generate additional returns while also reducing risk. Equity savings funds are managed by professional fund managers who have expertise in equity, debt, and arbitrage strategies. Investors can buy and sell units of these funds daily at the prevailing Net Asset Value (NAV) of the fund. Overall, equity savings funds provide investors with a diversified portfolio of equity and debt investments along with arbitrage opportunities, which can help generate higher returns while managing risk. However, investors should carefully consider their investment objectives, risk tolerance, and financial situation before investing in these funds. It’s always good to seek the guidance of a financial advisor before making any investment decisions.

Who Should Invest In Equity Savings Funds?

Equity savings funds can be a suitable investment option for individuals who have a moderate to high-risk appetite and are looking to invest in a combination of equity, debt, and arbitrage securities. These funds aim to generate returns by investing in different asset opportunities, which helps to balance out the risk involved. Here are a few types of investors who may benefit from investing in equity savings funds:

Conservative investors who want to take exposure to equities

Equity savings funds may be suitable for investors who want to invest in equity markets but are not comfortable with the high risk involved. Such investors can opt for equity savings funds, which offer exposure to equities while reducing the risk through investments in debt and arbitrage opportunities.

Investors with a moderate risk appetite

Equity savings funds can be suitable for investors who have a moderate risk appetite and want to invest in a combination of equity, debt, and arbitrage opportunities.

Investors looking for tax-efficient investments

Equity savings funds can be an excellent tax-efficient investment option for investors who want to save taxes. These funds invest in equity and debt securities, which makes them eligible for capital gains tax benefits.

Advantages of equity savings funds

Here are some advantages of investing in Equity Saving Schemes:


ESS funds diversify your portfolio by investing in various equity, debt, and arbitrage options. As a result, the portfolio’s risk is decreased, and you can be sure that your gains are not only based on the success of one asset type.

Tax efficiency

Equity Savings Schemes have a tax-efficient structure because they invest in a mix of equity, debt, and arbitrage opportunities. The debt element of the fund is taxed at a lower rate than fixed deposits. The returns from the equity that investors retain for more than a year are tax-free if they are less than Rs. 1 lakh. Investors should keep in mind that if they redeem their gains from this fund before one year has passed since it closed, they will be subject to a 15% tax.

Lower volatility

The equity component provides scope for higher returns, whereas the debt component of the ESS fund provides stability and reduces volatility. This combination results in lower volatility than investing only in equity funds

Potential for higher returns

Getting higher returns than conventional fixed-income investments is the goal of ESS funds. In addition to offering some protection from market volatility, the fund has the potential to produce larger returns than fixed deposits because it invests in a variety of stock, debt, and arbitrage options.


Because ESS funds are open-ended, investors may purchase and sell shares at any time. Investors benefit from the liquidity this offers, which makes it simpler for them to access their money when needed.

Professional management

ESS funds are managed by seasoned experts that have a thorough understanding of the market and are capable of making wise investment choices. Knowing that their money is being managed by professionals can give investors peace of mind.

Equity savings schemes may be a good option for investors looking to diversify their holdings, increase returns relative to typical fixed-income investments, and decrease volatility. Before investing in any mutual fund, it’s critical to comprehend the fund’s investment philosophy, associated risks, and historical performance.


Equity savings funds allocate a specific portion of equity as security to maximise investment portfolio returns. As a result, this equity and derivative exposure are considered together as equity allocations. Therefore, these funds are treated as equity assets for tax purposes. If an investor earns long-term capital gains of less than Rs. 1 lakh from equity assets and stocks, these gains are tax-free. Any capital gain above this amount is taxed at a rate of 10%. However, if the investor holds the funds for less than 12 months, the tax rate for short-term capital gains is 15%.


Before investing in equity savings funds, investors must carefully analyse the fund’s investment objectives, past performance, and risk profile, among other factors. It is always advisable to consult a financial advisor before investing in any mutual fund. Now that you have learned about Equity Saving Schemes Fund, open a Demat account with Angel One and start building your wealth.


What is an Equity Savings Scheme (ESS)?

Equity Savings Schemes (ESS) are mutual fund schemes that make investments in equity, debt, and arbitrage opportunities. This hybrid mutual fund scheme allocates 30–35% of its assets to equity, with the rest portions going to debt and arbitrage opportunities.

Who should invest in equity savings scheme funds?

Investors seeking a low-risk investment option that offers diversification and tax efficiency can consider equity savings scheme funds. They are also appropriate for low-risk investors who want to invest in stocks.

What is the ideal investment horizon for equity savings scheme funds?

For equity savings scheme funds, a 24-30 months investment horizon is suitable. Investors should keep in mind, nevertheless, that the longer they remain engaged, the greater the likelihood that they will get bigger returns.