What is Equity Savings Scheme?

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Equity savings fund is a mutual fund type which is suitable for investors with moderate risk appetite and who wants to reap dual benefits of capital appreciation from equity and regular income stream. The equity savings scheme invest 1/3 rd of the fund amount in fixed income instruments, 1/3rd in equity mix and the remaining in arbitrage.

What is Equity Savings Scheme?

So, if you fall in the conservative investor category but still want to earn higher and can accommodate some risk element, you can consider equity savings fund as they give higher post-tax returns. Thus these funds also offer an additional benefit of being tax-efficient. So, here are few distinguished features of equity savings scheme which make them a good bet.

1. Equity savings funds offer lower volatility in comparison to equity funds: As over 50% of the corpus is invested in debt and arbitrage, this scheme offer stable returns. To lower volatility, fund managers use derivative strategies and the arbitrage component of the fund capitalizes on price differential in different part of the market.
So, per analysts, if you are seeking stability in returns, equity savings funds are for you. Else those seeking higher returns and having ample risk appetite can invest in pure equity funds.

2. Tax-efficient: For taxation purpose, equity savings schemes are treated as equity funds. And returns on it are not taxed in case the scheme is held for over a year. However in case of redemption before a year, a short term capital gains tax @ 15% is payable.

The allocation of funds in arbitrage instruments helps the scheme to earn stable returns and AMCs are expert at handling arbitrage and offer low risk-returns.
Investors should hold these schemes for over a year, as early redemption comes with exit load charges of 1%.


Story first published: Wednesday, August 30, 2017, 13:48 [IST]
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