Equity Savings Fund, as the name suggests, is an open-ended mutual fund scheme which offers investors an opportunity to save money while creating long-term wealth. Introduced in 2017 by the capital market regulator Sebi as part of the mutual fund categorisation, the category of Equity Savings Fund invests in two asset classes —equity and debt. Thus investors get an inbuilt asset allocation mechanism. This ensures they have the stability and steady growth of debt, while equity exposure adds the growth element in the long-term.
Prima facie, such funds may appear like hybrid funds to a lay investor. However, what differentiates equity savings funds from a hybrid scheme is the former’s flexibility to invest in equity-related arbitrage opportunities. Because of this, compared to a pure equity fund, equity savings funds are relatively safer despite the mandate of investing a minimum of 65% of assets in equity-oriented instruments. The category’s flexibility to benefit from the arbitrage opportunity partially aids in hedging the equity exposure – making it a safer equity bet for investors.
Thus, the overall portfolio construction of equity savings schemes is tilted towards risk management with a focus on generating income and long-term wealth. Thus for investors who have a conservative approach and have an investment horizon of 2-3 years, equity savings schemes have emerged as a relatively better option.
Given the portfolio construction, equity savings schemes are better placed to prevent downside risks compared to regular equity funds or aggressive hybrid fund categories. On the other hand, such funds not only yield higher returns when compared with regular debt funds or traditional financial investment avenues, but they also fare better in terms of tax efficiency as well.
For the same, investors may consider investing in ICICI Prudential Equity Savings Fund. The scheme is one of the largest funds and has a good performance track record. One can invest either through SIP mode or Lump sum or a mix of both. Moreover, investors who have idle money in their savings accounts and may not need it for 2-3 years, should consider investing in an equity savings fund as a better and efficient investment option.
