ICICI Prudential Equity Savings: Exposure to equity with low risk

The fund has outperformed its category over one-, two- and three-year time-frames

ICICI Prudential Equity Savings is one of the funds under the equity savings category that combines the strategies of investing in equity, debt and arbitrage opportunities. The scheme was earlier called ICICI Prudential Equity Income, and has delivered decent returns since its launch in December 2014. The fund has outperformed its category over one-, two- and three-year time-frames, clocking compounded annualised returns of 8.5 per cent, 6.8 per cent and 9.2 per cent, respectively. The category generated 5.2 per cent, 5.1 per cent and 7.4 per cent returns, respectively, during these periods.

Suitability

Equity savings funds are suitable for investors looking for some exposure to equity but have a lower risk appetite. In the risk-return pyramid, the equity savings funds category is placed between conservative hybrid funds and aggressive hybrid funds. Since these schemes allocate at least 65 per cent to equity and arbitrage opportunities, they are treated as equity funds for tax purposes.

As per the current tax structure, dividends and capital gains (if redeemed after a year) under these funds are taxed at 10 per cent (plus, surcharge, if any, and cess).

The ideal holding period would be at least three years or more based on the investor’s financial goals. The other good performers in the category are HDFC Equity Savings, Axis Equity Saver and Kotak Equity Savings.

Investment strategy

ICICI Pru Equity Savings allocates 15-50 per cent to equities, providing a kicker to returns. An allocation of 10-35 per cent to debt papers offers stable returns with low volatility.

The scheme tries to capitalise its arbitrage strategy by allocating 25-75 per cent to arbitrage based on the market condition. Under the arbitrage strategy, the fund takes advantage of the price differentials in various market segments such as cash and futures market. Active use of derivatives helps it to not only reduce the volatility of returns but also earn some extra returns. As per the latest portfolio (April 2019), ICICI Pru Equity Savings maintains 43 per cent of its portfolio in hedged equity (arbitrage) and 24 per cent in unhedged equity. The fund follows a multi-cap approach, though it tilts towards large-cap stocks. The allocation to large-, mid- and small-cap stocks as per the latest portfolio stands at 83 per cent, 10 per cent and 7 per cent, respectively. The large-cap slant lends comfort in volatile markets.

NTPC, Infosys and Coal India are the top three holdings.

In the fixed-income portfolio, the fund invests in a mix of AAA and AA rated corporate debt and fixed deposits. As per the latest portfolio, the fund has invested about 4 per cent and 12 per cent in AAA and AA rated NCDs (non-convertible debentures), respectively. Around 17 per cent has been kept in fixed deposits.

The average maturity of the scheme has been 0.5-2 years over the past two years.

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