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Equity saving funds are hybrid funds that combine the strategies of investing in equity, debt and arbitrage opportunities. Since these schemes allocate at least 65 per cent to equity and arbitrage opportunities, they are treated as equity funds for tax purposes. Investors with a medium risk profile looking for higher returns than debt funds, along with lower volatility, can consider these funds.
Currently, there are 21 schemes under this category, having limited track records. Axis Equity Saver is one such fund which has delivered notable returns since its launch. It has outperformed its category over one-, two- and three-year time-frames, clocking compound annualised returns of 5.6, 10.3 and 7.8 per cent, respectively; the category generated 1.8, 7.3 and 7.3 per cent returns, respectively.
Investment strategy
Axis Equity Saver invests in equities, debt and arbitrage opportunities. The scheme allocates 20-45 per cent to equities, providing a kicker to returns. An allocation of 20-35 per cent to debt papers offers stable returns with low volatility.
The scheme tries to capitalise from the arbitrage strategy by allocating 20-60 per cent 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. Actively using derivatives helps it to not only reduce the volatility of returns but also earn some extra returns. As the equity and the derivative exposure is considered ‘equity’ allocation, these funds fit the criterion of an equity fund, since at least 65 per cent of their corpus is invested in hedged and unhedged equity.
As per the current tax structure for retail investors, dividends and capital gains (if redeemed after a year and in excess of ₹1 lakh) under these funds are taxed at 10 per cent (plus, surcharge, if any, and cess).
Portfolio
As per the latest portfolio, Axis Equity Saver has maintained 23 per cent of its portfolio in hedged (arbitrage) and 42 per cent in unhedged equity over the past year.
According to the latest portfolio, the combined equity exposure is 65.4 per cent. The fund follows a multi-cap approach, though it tilts towards large-cap stocks.
The ratio of large- to mid-cap stocks as per the latest portfolio stands at 96:4. The large-cap slant lends comfort in volatile markets.
In the fixed-income portfolio, the fund invests in a mix of AAA, AA and A rated corporate debt and G-Secs.
As per the latest portfolio, the fund has invested about 10 per cent in AA and below-rated NCDs (non-convertible debentures), including Punjab National Bank, Syndicate Bank and Union Bank of India. Around 12 per cent is kept in AAA rated papers.
The average maturity of the portfolio has been 2-6 years over the past five years.
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