Equity Savings Schemes belong to the hybrid category, they invest in a mix of equity, debt and arbitrage opportunities. A scheme in this category invests in both equity and debt securities, employing a combination of three investment strategies – pure equity (net long equity), arbitrage and debt. The net long equity exposure helps generate capital appreciations, and arbitrage opportunities and allocation to debt securities provide income and generate stable return.
Typically equity could constitute 65-90% of the portfolio of which arbitrage opportunities could be 25-75%, unhedged equity 15-40% and debt and money market instruments 10-35%. If the fund manager is positive on equities, higher could be proportion of the same in the portfolio. Conservative fund manager typically keep it at 15-35%, with equity part being invested primarily in large caps. The debt portion to is conservatively managed largely investing in AAA rated paper or government securities with low duration.
Over the last three years as per data from value Research, this category of funds has given a return of 7.9%. Distributor feel these fund work well for investors eyeing more than fixed deposit returns over three years, investing in mutual fund for the first time or those worried about high volatility in pure equity funds. This fund suit investors eyeing equity exposure but do not have a very long time horizon and want low volatility.
The portfolio of these schemes is structured in such a way that the corpus set aside for investing in stock and arbitrage remains above 65%. Due to this, they are classified as equity mutual funds for taxation, investors pay 15% for short term capital gain for investments held for less than a year and 10% for long term capital gains, if held for more than a year.
Sources : Economics Times
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