Equity saving funds beat market volatility

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The Equity Saving Funds, which invest in a mix of cash-futures arbitrage, equity and debt instruments, have manage to deliver a consistent return of 20 per cent in last six months of uncertainty kicked off by Covid pandemic.

In fact, Mahindra Manulife Equity Savings Dhan Sanchay Yojana and Mirae Asset Equity Savings Fund have topped the table with 30 per cent return so far this financial year followed by L&T MF, SBI MF and DSP MF have delivered 27 per cent return.

 

Gitesh Kulkarni, Partner, Money’s Worth Finserv, said the portfolio mix of equity, debt and arbitrage tries to protect the downside risk.

The equity taxation treatment enhances the category a better option than liquid or short term funds to park money for a short period and shifting money through a systematic transfer plan to other equity funds, he said.

Mahindra Manulife Equity Savings has an equity exposure between 40-60 per cent, cash-futures arbitrage exposure of 5-25 per cent while debt investments of about 15-35 per cent.

An equity savings fund invests 25-75 per cent in arbitrage opportunities in the cash-futures market, which is considered low-risk as the equity investments need to be hedged with equity futures.

About 15-40 per cent of the assets are exposed to equity to give investors moderate participation in equity markets. These limits ensure that fund managers reduce equity exposure in rising equity markets and increase exposure in falling markets.

The debt exposure of 10 and 35 per cent to debt and money market instruments gives the cushion to the portfolio during highly volatile equity market.

As an equity savings fund keep 65 per cent of investments in equity or equity-related investments at all points of time, it is taxed at much lower rates compared to debt funds.



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