Top Equity Savings Funds: Less Risk, Better Returns: Investing in equity mutual funds for the long term is considered a better way of wealth creation. Popular options of equity funds include flexi cap, multi cap, large and mid cap, mid cap and various sectoral and thematic funds. At the same time, for tax saving, investors usually focus on equity linked savings scheme (ELSS). But many investors do not want to take the risk of investing in these funds which have a lot of exposure to equity. But on the other hand, the low returns on bank fixed deposits (Bank FD) also do not attract them. Due to no tax exemption on the returns of debt funds under the new rules, they are no longer a preferred option.
In such a situation, what should investors who want better returns and tax treatment than FD or debt funds at low risk do? One option for such investors can also be Equity Savings Funds. Top equity savings funds have given up to 14 percent annual returns in the last 5 years, that too with tax benefits on returns. We will give information about these funds later, but first let us know what is the meaning of equity savings fund?
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What is the meaning of Equity Savings Fund
Equity Savings Funds fall under the hybrid category of mutual funds. As per SEBI’s definition, hybrid funds invest in equity as well as debt instruments. The hybrid category is further divided into several sub-categories, one of which is equity savings funds. As per SEBI rules, it is necessary to invest at least 65% of these funds in equity and equity-related instruments and at least 10% in debt instruments. Apart from this, these funds also invest in arbitrage to reduce risk through hedging. The minimum investment to be made for hedging has to be given in the scheme document.
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Top 6 Equity Savings Funds that gave best returns in 5 years
1.HSBC Equity Savings Fund
Annual Return in 5 years (Direct Plan): 14.67%
Annualized Return in 5 Years (Regular Plan): 13.65%
Riskometer : Moderately high
Asset Under Management (AUM): Rs 445.75 crore
2. Mahindra Manulife Equity Savings Fund
Annual Return in 5 years (Direct Plan): 14.20%
Annualized Return in 5 Years (Regular Plan): 12.26%
Riskometer : Moderately high
Asset Under Management (AUM): Rs 541.42 crore
3. Mirae Asset Equity Savings Fund
Annual Return in 5 years (Direct Plan): 14.16%
Annualized Return in 5 Years (Regular Plan): 13.02%
Riskometer : Moderately high
Asset Under Management (AUM): Rs 1,277.87 crore
4. Kotak Equity Savings Fund
Annual Return in 5 years (Direct Plan): 13.37%
Annualized Return in 5 Years (Regular Plan): 12.24%
Riskometer : Moderately high
Asset Under Management (AUM): Rs 6,995.23 crore
5. Sundaram Equity Savings Fund
Annual Return in 5 years (Direct Plan): 13.17%
Annualized Return in 5 Years (Regular Plan): 11.31%
Riskometer : Moderate
Asset Under Management (AUM): Rs 919.65 crore
6. HDFC Equity Savings Fund
Annual Return in 5 years (Direct Plan): 12.89%
Annualized Return in 5 Years (Regular Plan): 11.94%
Riskometer : Moderately high
Asset Under Management (AUM): Rs 5,026.41 crore
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Tax benefits on returns
Since at least 65% of the portfolio of equity savings funds is invested in equity and equity-related instruments, the returns on investment in these are considered similar to equity funds in terms of tax. That is, if the units of this fund are sold after holding them for a year, then no income tax will have to be paid on profits up to Rs 1.25 lakh made during a financial year. If the profit is more than this in a year, then Long Term Capital Gains Tax (LTCG) will have to be paid at the rate of 12.50 percent. On the other hand, no such benefit is available on the returns of FD or debt funds. From this perspective, the figures of returns of the last 5 years of top equity savings funds given above look even more attractive.
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Things to know before investing
Before making any decision about investing in equity savings funds, it is important to know that the risk in these schemes is less than that of pure equity plans. But this does not mean that there is no risk in them at all. According to SEBI’s definition, at least 65 percent of the investment is in equity or equity-related assets. However, this risk is also managed through hedging. Still, the fluctuations in the market have some effect on them as well. Most equity savings funds have been rated ‘moderate risk’ or ‘moderately high risk’ on the riskometer.
(Disclaimer: The purpose of this article is only to provide information, not to give investment advice. Market fluctuations have a direct impact on the returns of equity mutual funds. Their past performance cannot be considered a guarantee of giving similar returns in future. Take any investment decision only with the advice of your investment advisor.)
