With the change in the taxation of debt fund units purchased on or after 1st April 2023, the focus shifts on (1) the change in the investment mandate of certain existing schemes, (2) the launch of balanced hybrid funds (these can hold 40-60% equity) and (3) equity savings funds.
In our coverage of this topic, we have already discussed the first two aspects. And the change in mandates has already begun.
Now, we consider equity savings funds.
What are equity savings funds? These are hybrid funds mandated to hold 65% of Indian equity at all times. The rest will usually be in bonds. The equity allocation has hedged equity (arbitrage holding) and unhedged equity (normal stock hold or long positions). SEBI has mandated that AMCs disclose the hedged and unhedged holdings in the scheme documents.
Are they alternatives for debt funds? Certainly not! They can hold a significant amount of unhedged equity in the portfolio. So they will be much less volatile than typical equity funds but more volatile than debt funds. For example, this is the last three-year volatility (standard deviation) of three funds from ICICI.
- ICICI Pru Gilt Fund(G)-Direct Plan 1.0225%
- ICICI Pru Equity Savings Fund(G)-Direct Plan 2.1910%
- ICICI Pru Nifty 50 Index Fund(G)-Direct Plan 5.6775%
Gilt funds are the most volatile in the debt fund space. The ICICI equity savings fund is twice as volatile as the ICICI gilt fund. Therefore equity savings funds should not be considered debt fund alternatives.
Do not make the mistake of investing in equity savings funds instead of debt funds only to save tax. As mentioned earlier, changes in tax rules should not govern our investment products. Only our investment strategy should.
How much equity do they hold? It depends on the fund. As of March 26th 2023, these are some equity savings funds’ lower and upper limits.
- ICICI 15-50%
- HDFC 15-40%
- SBI 20-50%
- Kotak 10-50%
- Axis 20-45%
- Mirae 20-45%
- UTI 20-50%
- Edelweiss 15-50%
- DSP 20-55%
- ABSL 20-45%
How can funds that can hold 40-50% equity call themselves equity “savings” funds?! These funds can be viewed as dynamic asset allocation funds that change direct equity allocation per market conditions. And they can also buy corporate bonds. So they come with interest rate risk and credit risk as well.
Can I invest in equity savings funds instead of debt funds from 1st April 2023?
- If you are new to mutual funds, you should not consider equity savings funds.
- If you consider yourself a retail investor finding it hard to invest enough for your goals, then you should not consider equity savings funds. This would only increase overall portfolio risk.
- If you are an accomplished investor, appreciative of risks, in the highest tax slab, have accumulated a sizeable corpus, and have a sizeable investment to make each year, then and only then are equity savings fund a reasonable alternative to debt funds. However, do not buy them for the short term.
Do share this article with your friends using the buttons below.
🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)
