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What are Equity Savings Schemes
Equity Savings Schemes are open-ended Mutual Fund schemes that invest in equities, arbitrage, derivatives, and debt securities. These funds are known to generate more consistent returns when compared to other mutual fund schemes.
These funds invest in equities and derivative strategies including arbitrage to manage the exposure of the fund at 65% in equity and equity-related instruments and a minimum of 10% in the debt asset class. The diversification within the portfolio makes it a safer investment ensuring better returns than fixed deposit schemes from banks.
Investors should not expect high returns from these funds. These are ideal to generate 4-6% of returns
How Do Equity Savings Mutual Funds Work
Maintaining a diversified portfolio with the help of Equity Savings Schemes serves various purposes to the investors. Equity Funds invest largely in the stocks of various companies. Depending on the market conditions, the asset allocation is made in Small-cap, Mid-cap, or Large-cap stocks. The balance amount is invested in debt and other market instruments.
The arbitrage component of the portfolio protects the downside risk while simultaneously providing stable income from debt-related instruments.
Advantages of Equity Savings Funds
Some of the major benefits of investing in Equity Savings Schemes can be explained as under:
- Offer Reduced Volatility: Equity Savings Schemes invest substantial funds in debt and arbitrage holdings, offering comparatively stable returns than pure equity holdings.
- Professionally Managed Funds: These funds are managed by expert fund managers with solid market knowledge. They ensure investing in top-performing stocks to deliver the best returns.
- Diversified Portfolio with Low Risks: Investing in Equity Savings Schemes means maintaining a diversified portfolio to help lower the investor’s risks. So, when some of the stocks underperform, the investors can still achieve capital gains with the help of the performance of the other stocks.
- Better Liquidity: Equity Savings Funds can be redeemed as per the investor’s needs. You can liquidate your investments anytime on any business day within market hours, without the boundation of any lock-in period. However, these funds are to hold at least for one year from the date of purchase, otherwise, you have to pay exit load charges for early redemption.
- Tax Benefits: These funds offer a better tax deduction. These funds are treated as equity funds and thus offer a reduced tax liability. With the holdings of more than 12 months, 10% tax is levied however the returns upto Rs. 1 Lakh are tax exempted. While for investments for less than one year, the investors have to pay tax at the rate of 15%.
- Ease of Investing: Equity Savings Funds are easy to invest and an individual can even invest through SIP. They can choose to invest weekly, bi-weekly, monthly, quarterly with any denominations of their choice.
Who Should Invest in Equity Savings Scheme
Equity Savings Schemes are in high demand and the investors should consider the investment horizon, risk profile, and other objectives before investing in these funds.
- These are good for investors looking for low-risk equity schemes.
- Investors who want to achieve short-term goals with moderate returns can choose Equity Saving Funds. These funds are safe and are an investment instrument that generates better returns when compared to bank fixed deposit schemes.
- Good for the investors who want to create a corpus during their retirement.
- Equity Savings Schemes are a perfect option for investors who want to invest in equity but have less knowledge of the market.
Frequently Asked Questions (FAQs)
1. Are Equity Savings Funds Safe?
Equity Savings Funds are known as safer investments in comparison to regular pure Equity Mutual Funds, as they comprise a mixed portfolio of equity and debt class assets along with arbitrage.
2. Where do Equity Savings Funds Invest?
Equity Savings Funds invests the total assets between Equity Funds, Debt Funds, and Arbitrage. However, these funds invest largely in the stocks of various companies to help generate higher returns.
3. How Are Equity Savings Funds Taxed?
Equity Savings Funds are required to invest 65% of their assets in equities, so they are treated as equity investments, and are taxed accordingly. The investments sold before a period of 12 months from the date of allotment, are Short-Term Capital Gains (STCG) and are taxed at the rate of 15%. While for investments held for more than one year, they are known as Long-Term Capital Gains (LTCG) and are taxed at 10%. LTCG up to Rs. 1 Lakh in a financial year is tax exempted.
4. How to Invest in Arbitrage Funds with Nivesh?
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
