Looking For a Great Consistent Balanced Fund Equity Savings Fund? HDFC Equity Savings Fund Is the Option for You

Looking For a Great Consistent Balanced Fund Equity Savings Fund? HDFC Equity Savings Fund Is the Option for You

Feb 20, 2018

Equity savings fund is a new member to the equity mutual fund family. This new fund category is a combination of equity and debt funds.

Investors who are looking to earn high returns on their investments and are open to taking a little risk, can invest in these funds. One-third of these funds are invested in equities, another one-third remains invested in bank fixed deposits and the rest remains parked in arbitrage. This fund is treated as an equity instrument for the purpose of taxation. Financial experts are of the opinion that conservative investors will benefit from these funds because they not just offer good post-tax returns but also incredible tax efficiency. So, any investor, willing to invest for a medium or long term can benefit from these funds, provided they are ready to take moderate risk.The reason why these funds are less risky than balanced funds is that only one-third of their invested money remains parked in equities.

These funds gained unprecedented popularity after the 2014 Union budget, when the government of India raised the holding period of debt mutual funds from one to three years.

Although there are many benefits of investing in equity savings funds, here are a few that you simply can’t ignore -

Tax efficiency -

In matters linked to taxation, equity savings funds can offer amazing benefits. One of the most interesting aspects is that returns earned from these funds are not taxed. If, however, the amount is redeemed before one year, the investor pays 15% short-term capital gains tax.

The presence of arbitrage helps the investors gain stable returns.

Volatility is low -

Equity savings funds are far less risky than equity funds because a large part of the invested amount remains parked in arbitrage and debt funds, as a result of which the fund gains stability. According to financial experts, equity savings funds are perfect for those investors who like to get exposure to equities without being harmed by its market volatility. It’s also suited to investors who want tax efficiency, opportunity to earn high income at medium risk, and the growth potential of equity.

Incomparable to balanced funds -

Equity savings funds are a lot different from equity funds and balanced funds. They are different from equity funds in being less risky. Now, the question that arises here is- how are they different from balanced funds? About 65% of all the corpus of a balanced fund remains parked in equities; the rest of it stays with debt funds. But in case of an equity savings fund, the weight age of equity is lower in comparison to other asset classes. Interestingly, the tax benefits offered by equity savings funds are equal to that offered by balanced funds. People having investment goals to be met post three years and a moderate risk appetite can go for these funds without apprehensions. The best way to invest in an equity savings fund is with the SIP approach.

Although there are many equity savings funds in the market, HDFC Equity Savings Fund can be considered the best. Why the best? Find out here -

HDFC Equity Savings Fund -

The scheme aims at providing capital appreciation to investors besides undertaking income distribution. The fund offers returns by investing in equities and equity linked funds, money market instruments and debts, and arbitrage. The minimum amount needed to be a member of this fund, launched on 17th of September, 2004 is INR 5000.

Now, let’s look at the returns it offered from the year 2012 to 2017.

In the year 2012, the fund offered a return percentage of 12.39, which enabled it to clinch a position in the top quartile. In 2013 again, the fund appeared in the top quartile by offering a return of 6.76%. 15.72% was the return that the scheme offered in 2014, which made it figure in the top quartile for one more time. 2015’s performance dipped a little, with its returns pegged at 2.04%. Nevertheless, it remained at the top quartile. In 2016, the return figure rose to 14.13%. The return dipped slightly in the year 2017, but the picture is still pleasant. And in both the years i.e. 2016 and 2017, the scheme maintained its position at the top quartile.

Source: Swaraj Wealth Research

Now, let’s have a look at the scheme performance table below -

In the first year of its launch, HDFC Equity Savings Fund offered a return of 13.26% against 10.49% of market average. In the third of the scheme’s launch, the return it offered was pegged at 10.66%,whereas the market average was 9.01% for that year. In the fifth year of its advent, the scheme again performed well and offered a return percentage of 10.68 against the 9.14% return comparable funds offered that year. The scheme’s tenth year in the market also reflected a pleasant picture as it offered a return of 10.19% as opposed to 8.81% offered by other comparable funds. One thing that you may have noticed here is that the fund offered a better performance than other comparable funds in the market in all these years taken into consideration. So, if we look at the overall since-launch return offered by the scheme, we see that its performance has been comparable to the market average of other funds- while the scheme offered a return of 9.86%, other funds lagged behind offering slightly lesser i.e. 9.56%.

Source: Swaraj Wealth Research

Now, it’s time to look at the yearly performance of the scheme. So, in all the years, starting from 2012 to 2016, the scheme showed amazing performance as it marked higher growth than other comparable funds, except in the years 2014 and 2015. What is most interesting to see in this graph is the performance of the scheme in the year 2016. It showed a growth of 14.13% in the said year, while its competitors could not even come closer to half of what it offered.

Source: Swaraj Wealth Research

From the discussion above, it may be inferred that HDFC Equity Savings Fund is an ideal fund for investment for risk-averse investors. And there are so many benefits it has on offer for its investors that you can’t say ‘no’ to it,simply on whim.

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