Reliance Equity Savings Fund: A combo of safety and thrills

The fund offers debt-like stability in returns, with the tax advantage of equity funds

With the stock markets ruling high, investors with medium risk profile can shift part of their equity investments to relatively safer avenues.

Equity Saving Funds, within the hybrid category, are fast gaining investors’ attention, given their tax efficiency and stability in returns. These funds combine debt, equity arbitrage and equities to offer better post-tax returns than bank fixed deposits.

Currently, there are 13 schemes under this category having limited track record. Reliance Equity Savings Fund has a sound track record. This fund has beaten the category by a huge margin over six-month, one-year and two-year timeframes, clocking 8.1 per cent absolute, and 12.4 and 8.2 per cent annual returns, respectively. The category generated 5.6 per cent, 9.6 and 8.2 per cent annual returns, respectively, during these periods.

Investors looking for debt-like stability in returns with the tax advantage of equity funds could park their money in this fund.

Allocation strategy

Equity savings fund schemes invest in equity, debt and arbitrage opportunities, with 30-35 per cent of their corpus in equity to boost returns.

These schemes endeavour to capitalise on arbitrage opportunities — taking advantage of the price differentials in the segments such as cash and futures markets. The hedging strategy helps the funds to reduce the volatility in returns.

Since these schemes allocate at least 65 per cent in the equity and arbitrage opportunities, they are treated as equity funds for tax purposes. Dividends and capital gains (if redeemed after a year) are tax-free. Hence, these funds score over bank fixed deposits, debt funds and MIPs on the taxation front.

These funds are suitable for investors looking for some exposure in equity but with lower risk appetite. The ideal holding period would be one to three years, to make the most of tax benefits, not available for pure debt funds that also offer relatively stable returns.

Fund’s portfolio

Reliance Equity Savings Fund has a good track record.

However, do note that these funds have a limited track record and returns over the past two years may not be repeated in the next two to three years as interest rates have been bottoming out.

Still, for those in the higher tax bracket, such funds are a good option to park money for one to three years, given the tax benefit and steady returns.

Reliance Equity Savings Fund has maintained 29 per cent of its portfolio in hedged and 36 per cent in unhedged equity over the last one year. According to the latest portfolio, the combined equity exposure is 67.5 per cent.

The equity portion follows a multi-cap strategy, though the current portfolio is tilted towards large-caps.

The fund’s debt portfolio currently consists of AAA rated corporate bonds (17.3 per cent) and AA & below rated securities (12.5 per cent).

The average maturity has been two-four years over the last one year, mitigating the rate risk.

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