Equity savings schemes shine as investors seek out low-risk options

Equity savings schemes, one of the lesser-known hybrid fund categories, have attracted heightened interest as investors search for low-risk alternatives. In September, these schemes received a net inflow of Rs 2,269 crore, the highest amount ever recorded in a calendar month. Net account additions, or folios, surged to 11,232, compared to the previous six-month average of 6,300.

Equity savings schemes offer lower-risk hybrid options with tax advantages over most other mutual fund schemes with similar risk profiles.

These schemes invest in a blend of arbitrage opportunities, pure equity investments, and debt instruments to deliver predictable returns with low volatility while qualifying for equity taxation.

The net equity exposure is limited to 30-40 per cent of the portfolio, even though the gross exposure exceeds 65 per cent to meet equity taxation criteria. This hybrid category was poised to gain traction following the change in debt fund taxation in April 2023.

Balanced advantage funds are similar in underlying assets but differ in risk positioning. Equity savings schemes maintain much lower net equity exposure at all times, aligning with their conservative strategy. They have delivered an average return of 16 per cent over the past year, with an annualised three-year return close to 9%, according to data from Value Research.

The total assets under management (AUM) of equity savings schemes have risen by 80 per cent in one year, reaching Rs 39,546 crore. Additionally, multi-asset funds have also seen increased traction. In September, the AUM of multi-asset funds crossed the Rs 1 trillion mark for the first time, with a net inflow of over Rs 4,000 crore during the month.