Equity Savings Funds - A Conservative start to Equity Investing

Investing is crucial for accumulating wealth, as it enables your money to grow faster than inflation in the long term. However, in today's unpredictable world, uncertainty is the only constant. Navigating through numerous schemes and finding the right balance between equity and debt can be quite challenging.

So, what’s the solution?

Hybrid Mutual Funds are designed to address this challenge by blending two major asset classes to optimize risk and returns, catering to investors with varying risk tolerance. Each asset class in a hybrid fund serves a specific purpose:

• Equity – Drives growth of capital
• Debt – Provides stability of capital

The degree of equity allocation determines the risk-return profile of a Hybrid Mutual Fund. Funds with lower equity allocations tend to have lower risk and returns compared to those with higher equity allocations.

An Example

Neha, a 30-year-old IT executive, had always been averse to risky/volatile investments. She preferred the safety of fixed deposits and traditional savings accounts. However, she recently attended an investor awareness workshop that highlighted the impact of inflation on savings and the potential benefits of investing in mutual funds.

Intrigued but cautious, Neha decided to consult a registered investment advisor. The advisor introduced her to Equity Savings Funds, explaining how these funds could provide her with a balanced approach to investing. Neha was particularly attracted to the idea of having a mix of equity for growth, debt for stability, and arbitrage to manage risk.

Why should you invest in Equity Savings Fund?

• Return Potential

Equity Savings Funds aim to generate returns higher than traditional fixed income products, such as fixed deposits. This makes them an attractive option for those looking to earn more from their investments without taking on excessive risk.

• Ideal for conservative investors

Equity Savings Funds serve as an excellent entry product for gaining equity exposure. They are particularly suitable for conservative investors who are cautious about venturing into the equity market but still wish to benefit from potential equity returns.

• Better stability as compared to pure Equity Fund

Compared to equity funds, Equity Savings Funds offer relatively stable returns due to their lower equity exposure. This stability makes them an ideal choice for investors seeking a balanced approach to investing.

• Systematic Transfer Plan (STP) Suitability

Equity Savings Funds are suitable as a source scheme for a STP. This allows investors to gradually transfer a fixed amount from an Equity Savings Fund to another fund, thereby reducing the risk of market volatility through rupee cost averaging.

• Tax Efficiency*

One of the significant advantages of Equity Savings Funds is their tax efficiency. Equity Savings Funds are treated as equity oriented funds for taxation purposes provided gross equity allocation is equal to or greater then 65%.

*As per prevailing portfolio and provisions of the Income Tax Act, 1961. In view of individual nature of tax consequences, each unit holder is advised to consult their own professional tax advisors.

In conclusion, Equity Saving Funds represent a conservative yet effective approach to equity investing. They provide a balanced mix of growth, stability, and risk management, making them an ideal choice for investors at various stages of their investment journey. Whether you are a cautious beginner or someone looking to diversify your portfolio, Equity Savings Funds offer a strategic and practical solution for achieving your financial goals.

To know about HDFC Equity Savings Fund click here

Disclaimer: NEHA IS A FICTITIOUS CHARACTER, THERE IS NO RESEMBLANCE TO ANY PERSON. THE INFORMATION CONTAINED IN THIS DOCUMENT IS FOR GENERAL PURPOSES ONLY AND NOT AN INVESTMENT ADVICE. READERS SHOULD SEEK PROFESSIONAL ADVICE BEFORE TAKING ANY INVESTMENT RELATED DECISIONS.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.