Equity Savings Mutual Funds
Equity savings mutual funds fall under the category of hybrid funds in which the returns are generated by investing in debts, equity and arbitrage opportunities. These are invested across sectors that are well-researched and generate higher returns with better tax efficiency as compared to bank deposits.
Offer better diversification of portfolios
Comes with better tax efficiency
Investors can enjoy the benefit of arbitrage
Offer more stable returns compared to pure equity holdings
What are Equity Savings Mutual Funds?
Equity savings mutual funds are hybrid funds, where the total amount of investment is invested between debt, equity and arbitrage funds. Comparatively newer to the Indian money market, this scheme allows diversification of funds that help neutralise the volatility of the stock market. Thus it also mitigates the risks associated with it to some extent.
Best Equity Savings Mutual Funds to Invest
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HSBC Equity Savings Direct Plan Growth Plan▲ 13.28%AUM ₹548 Cr •
Expense 0.61%
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Kotak Equity Savings Fund Direct Growth▲ 11.6%AUM ₹7804 Cr •
Expense 0.66%
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Sundaram Equity Savings - Direct Plan - Growth Option▲ 11.48%AUM ₹990 Cr •
Expense 0.61%
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Invesco India Equity Savings Fund Direct Growth▲ 10.66%AUM ₹341 Cr •
Expense 0.73%
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UTI Equity Savings Fund Direct Growth▲ 10.6%AUM ₹613 Cr •
Expense 0.8%
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HDFC Equity Savings Fund -Direct Plan - Growth Option▲ 10.51%AUM ₹5463 Cr •
Expense 0.91%
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DSP Equity Savings Fund Direct Plan Growth▲ 10.43%AUM ₹2162 Cr •
Expense 0.43%
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SBI Equity Savings Direct Growth▲ 10.19%AUM ₹5616 Cr •
Expense 0.66%
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Mirae Asset Equity Savings Fund Direct Growth▲ 10.07%AUM ₹1353 Cr •
Expense 0.33%
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Edelweiss Equity Savings Fund Direct Growth▲ 9.92%AUM ₹539 Cr •
Expense 0.59%
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Baroda BNP Paribas Equity Savings Fund Direct Growth▲ 9.78%AUM ₹718 Cr •
Expense 1.4%
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Mahindra Manulife Equity Savings Fund Direct Growth▲ 9.48%AUM ₹572 Cr •
Expense 0.69%
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Tata Equity Savings Direct Plan Growth▲ 9.19%AUM ₹216 Cr •
Expense 0.49%
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Axis Equity Savings Fund Direct Plan Growth▲ 8.93%AUM ₹1020 Cr •
Expense 1%
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ICICI Prudential Equity Savings Fund Direct Growth▲ 8.83%AUM ₹12406 Cr •
Expense 0.5%
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Nippon India Equity Savings Direct Growth▲ 8.34%AUM ₹718 Cr •
Expense 0.74%
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Franklin India Equity Savings Fund Direct Growth▲ 8.02%AUM ₹724 Cr •
Expense 0.28%
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LIC MF Equity Savings Growth Option Direct▲ 7.95%AUM ₹20 Cr •
Expense 1.03%
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Bandhan Equity Savings Fund Direct Plan Growth▲ 7.57%AUM ₹194 Cr •
Expense 0.18%
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Union Equity Savings Fund Direct Growth▲ 7.15%AUM ₹341 Cr •
Expense 1.42%
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Advantages of Investing in Equity Savings Mutual Funds
Reduced Volatility
With equity savings funds, since the investment fund is distributed in certain proportions to other holdings, investors can get a stable return as compared to pure equity holdings. Fund Managers can also use derivative strategies to reduce volatility, while the arbitrage portion provides opportunities to capitalise through inconsistencies in various parts of the market.
Diversified Portfolio
Investors can get a diverse portfolio for their investment with top equity savings funds, through a single investment channel. Hence, there is no need to analyse the past performances of various funds for investors. You can just select one to invest and let the fund managers go through the selection of funds.
Tax Efficient Benefits
The tax liability on equity savings mutual funds is lower than other schemes since these are treated as equity funds for taxation. Hence, investors who would hold their funds for over 12 months are exempted from taxation up to Rs. 1 Lakh. However, you must also remember if you redeem the gains before 12 months, you will be taxed at the rate of interest which may vary from fund to fund.
Limitations of Investing in Equity Savings Mutual Funds
High Expense Ratio
The expense ratio for equity savings tends to be on the higher side. Since the fund managers need to constantly monitor the performances of stocks to invest in them, it requires active management skills of the asset managers. Hence, the expense ratio can be a little higher for their expert management.
Risk of Inflation
In the case of equity savings mutual funds, the risk of inflation is high and can significantly impact the returns. These funds can at times fail to go with the market inflation pace and can be disadvantageous for the investor, especially if the expected return from the investment's debt portion is lower than the increase in the cost of living.
Overload of Choices
There are thousands of equity schemes in mutual funds, from which investors have to make choices based on their financial goals. Hence, it can be sometimes challenging to make the right choice out of the vast spectrum of equity schemes. Therefore, investing in equity savings requires the utmost attention.
Who Should Consider Investing in Equity Savings Mutual Funds?
Investors Having a Short to Medium Term Investment Horizon
Since equity savings are invested in equity, you need to invest them for a considerable period to witness a potentially higher profit. It is because the fund manager invests your funds in several stocks, and the market can act differently at times, affecting your returns. So, if you are willing to invest for a tenure of 3 to 5 years, then this fund is the most suitable.
Investors Seeking Potentially Low-Risk Options
The risks associated with equity savings mutual funds are comparatively lesser than other mutual fund schemes like pure equity. This is because the funds are invested in proportion to equity, debt and arbitrage, hence it does not get enough room to get affected by the market fluctuations in the long run. So, it can be a suitable option for investors looking for lower risks within a diversified investment scheme.
Investors Looking for Diversification in Investment
Since through equity savings funds, you can invest across diverse categories of market capitalisation, it allows investors to enjoy the benefit of diversification. It lets you capitalise on the opportunities from both equity and debt income funds. Hence these can promise you stable returns in the long run. So this can be a good option for investors looking for their fund's portfolio diversification.
Taxation on Equity Savings Mutual Funds
Short-Term Capital Gains (STCG):
Gains on investments held for less than 12 months are taxed at 15%.
Long-Term Capital Gains (LTCG):
Gains on investments held for more than 12 months are taxed at 10% if the gains exceed Rs. 1 lakh in a financial year.
Frequently Asked Questions
Equity Savings Mutual Funds are hybrid mutual funds that invest in a mix of equity, debt, and arbitrage opportunities. These funds aim to provide a balanced approach to investing, offering potential growth from equities, stability from debt, and low-risk arbitrage strategies. Typically, the equity exposure in these funds is around 65%, which allows them to benefit from the favorable tax treatment of equity funds. They are suitable for investors looking for a moderate risk-return profile with the added benefit of tax efficiency. Equity Savings Mutual Funds can be an excellent option for those seeking diversification within a single fund.
Equity Savings Scheme Funds are moderately risky, balancing investments in equities, debt, and arbitrage. This mix reduces overall risk compared to pure equity funds while offering higher returns than pure debt funds.
Investors can invest in equity savings mutual funds for more than five years. However, keeping the money for at least 2 years is considered feasible.
Investors who would consider investing in short-term equity savings funds can be volatile can surely invest in the long-term one. Investors with a long-term investment horizon can have the potential to get higher returns in the long run.
Yes, you can withdraw money from equity savings mutual funds anytime if you invest in open-ended schemes. There are no restrictions on withdrawing these as long as they are invested in open-ended, be it debt or equity.
Equity savings funds are invested across different markets and sectors. These funds can also be invested by using derivatives to mitigate the risks involved and enjoy the benefits of market opportunities.
Traditional bank fixed deposits generate fixed returns on your investment. On the other hand, you will have the chance of getting higher returns on your investment with equity savings funds. So if you compare the two, equity savings funds are a better option than bank fixed deposits.
Based on 5 year returns, the best equity savings mutual funds to invest are
| S.no | Fund Name | 5 Year Returns (Annualized) |
| 1 | Sundaram Equity Savings Fund Direct Growth | 14.21% |
| 2 | HSBC Equity Savings Fund Direct Growth | 13.26% |
| 3 | Mirae Asset Equity Savings Fund Direct Growth | 13.23% |
| 4 | Mahindra Manulife Equity Savings Fund Direct Growth | 13.23% |
| 5 | Kotak Equity Savings Fund Direct Growth | 12.4% |
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