What are Equity Savings fund?
Equity savings fund essentially generate returns by investing in equity, debt and arbitrage opportunities. This last component sets them apart from other hybrid funds. Essentially, the fund manager looks to exploit the pricing inefficiencies in the cash and derivatives segments of the equity market. Thus, the fund's overall equity exposure is partially hedged, reducing its volatility as compared to an aggressive hybrid fund, where the equity exposure is fully unhedged.
Equity savings funds score over pure equity and aggressive hybrid funds on risks because of their downside protection while their equity exposure enables them to generate potentially higher returns compared with bank fixed deposits with greater tax efficiency. Their diversification makes them an attractive option for investors with a moderate risk profile, who want capital appreciation and a steady income. However, it is imperative to understand that returns of these funds are linked to arbitrage opportunities, which may not always be available in the market. Also, the underlying unhedged equity portion is exposed to the vagaries of the equity market and hence impacts the returns. Hence, investors must do proper due diligence before investing in them.
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