For first time retail investors, this lesser risky fund category which came into prominence in the year 2014 is a good bet at current high valuations and at a time when corporate earnings are yet to pick up.
At a time when markets reign at new highs with Nifty scaling close to 10500 points and Sensex hitting historic 34000 benchmark in trade today, experts suggest first time investors to take equity savings schemes route instead of the plain vanilla equity schemes.
This mutual fund category allocates 33% of the portfolio towards equity, debt and arbitrage products each. So, any sharp fall in the stock markets which since last four years has been seen rallying can be well cushioned by investments in other asset classes.
It is to be noted that the corpus set aside for investment in equity and arbitrage in case of equity savings funds is over 65% which lets the fund to be classified as equity product. The equity component can be anywhere between 20-40% depending on the managers interpretation of the market direction.
Returns from such funds is likely to be more than fixed deposits or debt funds but less than equity diversified funds or balanced funds with less of exposure in stock markets.
Taxation of Equity Savings Funds or Scheme
This mutual fund category is taxed like an equity product which means that if an investor remains invested in the product for more than a year, then any gains accruing from the scheme are not taxed in the hands of the investors. This means there is no capital gains tax implications if such an asset class is maintained with the investor for over a year.
Equity savings funds- For whom?
For first time equity investors or those who can afford a low degree of volatility in their investments, equity savings funds do make sense with taxation advantage if held for over a year.
And as the gush in mutual funds has been stupendous this year, investment in equity savings funds has been no exception with inflows having doubled to Rs 10,635 crore until August in comparison to the year ago period which clocked net investments into the category at Rs. 4652 crores.