At a lower risk, equity savings funds offer superior post-tax returns than debt funds.

Equity savings funds offer superior post-tax returns than debt funds

Investors with conservative to moderate risk profiles who want to earn 8% and have a two- to three-year investment horizon might consider equity savings, which offer greater post-tax returns than debt funds. These are supposed to be allocated to 20 to 50 per cent of their portfolios to equity, 15 to 45 per cent to arbitrage, and the remaining 20 to 50 per cent to fixed income. At a lower risk, equity savings funds offer superior post-tax returns than debt funds.

“The majority of fixed-income portfolios are skewed toward AAA-rated debt. With interest rates anticipated to rise shortly, portfolios are short on duration, leaving investors with only a 4-5 per cent post-expense return, according to Anup Bhaiya, managing director of Money Honey Financial Services. 

These funds are suited for investors seeking higher returns with a moderate risk appetite and lower volatility than a pure equity product, according to Bhaiya. According to the business daily, Bhaiya’s top recommendations are Mirae Equity Savings and HDFC Equity Savings Fund, and he believes that over a three-year period, investors may expect to gain 7-8 per cent from these funds.

According to financial planners, these have expanded their exposure to equities over the last year due to a strong equity market, lower arbitrage returns, and lower interest rates. 

According to Alok Agarwala, chief research officer at Bajaj Capital, average long positions that were 30-35 per cent pre-Covid have increased to 35-40 per cent. The majority of the schemes in this category use a Flexi-cap approach to stocks, allocating the majority of their assets to large caps with small tactical bets in the mid-and small-cap space.

Similarly, in the debt market, AAA paper is mostly allocated, with fund managers avoiding duration risk. According to Agarwala, investors should choose funds that have a track record of consistent performance, can safeguard against downside risk, and provide good risk-adjusted returns.

Kotak Equity Savings, Edelweiss Equity Savings, and ICICI Prudential Equity Savings Fund are among the funds he recommends. The largest advantage of this money, according to financial advisors, is taxation. When compared to the debt money, most of these funds are taxed as equity funds, which means that an investor who sells after one year pays only 10% long-term capital gains tax, resulting in higher post-tax profits.

 

NEED A LOAN?

I have read the Privacy Policy & Agree to Terms & Conditions and authorize Dialabank & its partner institutions to Call or SMS me with reference to my application.


Latest News

Menu