Best Equity Savings Funds
About Equity Savings Mutual Fund
Equity savings funds are open-ended mutual fund schemes. These funds invest in diversified asset classes such as equity, debt and arbitrage securities. SEBI introduced this mutual fund category in 2017 as part of its mutual fund re-categorisation exercise. As per SEBI regulations, the fund should invest a minimum of 65% in equities and at least 10% in debt holdings.
The fund manager is free to invest in equity and equity-related instruments, debt securities, and arbitrage securities through hedging strategies. The total risk factor in equity savings funds is flattened, and diversification is preserved because the exposure is distributed across both stock and debt instruments. The fund is also free to Invest in arbitrage opportunities, which allows fund managers to navigate through asset classes based on market conditions.
How Do Equity Savings Funds Work?
Equity funds mostly invest in the equities of different firms. The asset allocation is made in small-cap, mid-cap, or large-cap stocks, depending on the market conditions. The remaining sum is put in market instruments such as debt. The portfolio’s arbitrage element minimises downside risk while generating consistent income from debt-related assets.
Features of Equity Savings Mutual Funds
- Allocation of Asset: The fund manager in equity savings schemes makes investments in mixed asset classes such as equity, debt instruments, and arbitrage opportunities.
- Hybrid Nature: Equity savings funds are of a hybrid nature as their portfolios include both equity and debt investments. As a result of the hybrid structure, these funds are likely to reward investors with an optimal risk-return balance.
- Risk Management: The equity savings fund reduces the overall fluctuation of funds and risks due to the allocation of investments into debt instruments and potential arbitrage opportunities.
Advantages of Equity Savings Funds
- Arbitrage: Arbitrage is a trading practice wherein investors buy an asset from one market and sell it in another market to make a profit from the minor differences in the asset’s listed price. In volatile markets, arbitrage can generate comparable or even higher returns than liquid funds.
- Less Volatility: Equity savings funds are more resistant to market ups and downs as compared to shares because investments are split between debt and arbitrage holdings.
- Diversification: Investment in equity savings schemes can help you save numerous inconveniences, such as having to pick out a variety of funds separately in order to keep enough diversification in your portfolio and then monitoring the performance of each one of them.
Risks Involved in Equity Savings Funds
Equity savings funds are exposed to multiple risks as they invest in a mix of asset classes due to their hybrid nature. The equity portion in the equity savings scheme is subject to market conditions. The debt portion could be impacted by the adverse change in interest rate by RBI. Due to the volatility of the market, equity savings funds can deliver negative returns in some years or over shorter terms.
Factors to Consider Before Investing in Equity Savings Funds
Before considering investment in equity savings schemes, you should consider the following:
- Risk Exposure: Equity savings funds are not completely risk-free. These carry some element of risk due to the equity exposure. While the risk may be lower than equity funds, it is best to be cautious and explore portfolio rebalancing to minimise the risk exposure.
- No Guaranteed Returns: Equity savings funds do not offer guaranteed returns and are subject to various market factors.
- Costs: These funds frequently impose an expense ratio—also known as a management fee—for fund management. To increase the possibility of greater returns, it is crucial for investors to evaluate the expense ratio of funds.
Who Should Invest in Equity Savings Fund?
Equity savings funds are typically suitable for a specific category of investors who have certain financial goals, risk profiles, and preferences.
- Medium-Term Investment Horizon: The equity savings funds can be suitable for investors with a medium-term investment horizon. These funds are not a suitable choice for those having long-term goals or short-term liquidity needs, as these are not short-term options.
- Moderate Risk Tolerance: If you are an investor with a moderate risk appetite, then equity savings schemes can be a good fit for your portfolio. These funds possess the potential for higher returns compared to traditional fixed-income investments in exchange for a moderate level of risk.
- Tax Benefits: Equity savings schemes provide tax benefits to investors, especially related to long-term capital gains taxation. You can consider equity savings mutual funds if you are looking for tax-efficient investment options.
Taxability of Equity Savings Funds
For the purpose of taxation, equity savings mutual funds are treated as equity assets. You will have zero tax liability if the long-term capital gains (holding period of more than 12 months) from equity assets and stocks are below ₹1 lakh.
However, the equity savings scheme will be subject to a tax of 10% if the returns are over ₹1 lakh. The short-term capital gains (holding period less than 12 months) are taxable at 15%. As a result, equity savings schemes are a more tax-efficient option than pure debt funds.
How to Invest in Equity Savings Funds?
Investing in Equity Savings Mutual Funds through your Angel One account is a streamlined process that involves a few simple steps:
Step 1: Begin by logging in to your Angel One account using your registered mobile number. After logging in, validate the OTP (One-Time Password) for security purposes, and then enter your MPIN to access your account.
Please note that if you don’t have a Demat account with Angel One, you can open one quickly by completing the KYC (Know Your Customer) procedure and submitting the necessary documents.
Step 2: Once you’ve successfully logged in, it’s time to choose the most suitable mutual fund based on your financial needs and risk profile. You can evaluate various funds by navigating to the mutual fund section on the Angel One app. During this stage, consider the following factors:
- Search for the specific fund you wish to invest in or take recommendations from funds listed by Angel One across different categories.
- Analyse the fund’s historical performance, tax implications, constituent sectors, and the stocks it comprises.
- Utilise the calculator to estimate potential returns.
- Assess the level of risk associated with the fund and compare it to your risk tolerance.
- Check the fund’s ratings assigned by reputable rating agencies, typically on a scale from 1 to 5.
- Take note of the fund’s expense ratio, which provides insight into the cost of investing in it.
Step 3: After finalising the fund(s) you want to invest in, navigate to your Angel One account’s Mutual Funds section and search for your chosen fund. Since investing in mutual funds often involves a long-term commitment, exercise caution when selecting the fund(s) you intend to invest in. During this stage, consider the following:
- Decide whether you want to invest a lump sum amount or set up a monthly Systematic Investment Plan (SIP).
- Enter the investment amount you are comfortable with and choose your preferred payment method. UPI is the recommended mode, but you can also opt for net banking.
- After placing your order, if you’ve chosen the SIP investment route, you can establish a mandate for hassle-free future instalments.
Top 10 Equity Savings Mutual Funds to Invest in
| Name | AUM (in ₹Cr) | Min Investment (in ₹) | 3Y-CAGR (%) | 5Y-CAGR (%) |
| Sundaram Equity Savings Fund | 652.46 | 100 | 15.67 | 12.28 |
| HDFC Equity Savings Fund | 3,110.80 | 100 | 14.72 | 10.43 |
| Mahindra Manulife Equity Savings Funds | 400.46 | 1,000 | 14.37 | 12.61 |
| HSBC Equity Savings Fund | 173.42 | 500 | 14.05 | 10.34 |
| UTI Equity Savings Fund | 291.56 | 5,000 | 13.99 | 10.28 |
| SBI Equity Savings Fund | 2,757.61 | 500 | 13.61 | 11.35 |
| Mirae Asset Equity Savings Fund | 712.31 | 1,000 | 12.95 | – |
| Franklin India Equity Savings Fund | 220.65 | 500 | 12.41 | 9.41 |
| Kotak Equity Savings Fund | 3,154.13 | 100 | 12.16 | 10.66 |
| DSP Equity Savings Fund | 661.19` | 100 | 11.91 | 9.94 |
Note: The above mutual funds have been listed on the basis of 3 years CAGR.
Let us have a look at the top 10 equity savings funds in brief:
Sundaram Equity Savings Fund
It is an open-ended scheme investing in equity, arbitrage and debt. The expense ratio of the fund is 0.49%.
HDFC Equity Savings Fund
The scheme invests in large and mid-cap equities as well as in debt securities. The expense ratio of the fund is 1.11%.
Mahindra Manulife Equity Savings Fund
It is an open-ended scheme investing in equity, arbitrage and debt. The expense ratio of the fund is 0.72%.
HSBC Equity Savings Fund
It is an open-ended scheme investing in equity, arbitrage and debt. It was formerly known as L&T Equity Savings Fund.
UTI Equity Savings Fund
It invests in a hybrid portfolio of equity and debt securities with some exposure in arbitrage. The fund was launched in August 2018. The expense ratio of the fund is 0.69%.
SBI Equity Savings Fund
It is an open-ended hybrid scheme investing predominantly in equity and equity-related instruments. The expense ratio of the fund is 0.67%.
Mirae Asset Equity Savings Fund
It is an open-ended scheme investing in equity, arbitrage and debt. The expense ratio of the fund is 0.41%.
Franklin India Equity Savings Fund
It is an open-ended scheme investing in equity, arbitrage and debt. The expense ratio of the fund is 0.40%.
Kotak Equity Savings Fund
It is an open-ended scheme that invests in equity, arbitrage and debt securities. The expense ratio of the fund is 0.89%.
DSP Equity Savings Fund
It is a hybrid equity savings fund with Nifty Equity Savings Index as its benchmark. The risk level for this fund is categorised as moderately high risk.
Equity Savings FAQs
Are equity savings funds high-risk?
Should I invest in equity savings mutual funds?
What are the risks involved in investing in equity savings funds?
Are equity savings funds taxable?
How much money should I invest in equity savings funds?
