Moderate risk takers can invest in equity savings fund

Dwindling returns in the fixed income space and the hunt for higher returns in a bull market is making investors add equity to their portfolios.For investors with a conservative to moderate risk profile and who are looking to earn 8% and having a two- to three-year time horizon, financial planners recommend equity savings funds. These funds invest 20-50% of their portfolios in equity, 15-45% in arbitrage and the balance in fixed income.“Most fixed income portfolios are tilted towards AAA-rated paper. With interest rates likely to move up soon, portfolios are low on duration, which leaves investors with just a post-expense return of 4-5%,” said Anup Bhaiya, managing director of Money Honey Financial Services.For investors aiming for higher returns with a moderate risk appetite and lower volatility than a pure equity product, he recommends these funds. Bhaiya’s top picks are Mirae Equity Savings and HDFC Equity Savings Fund and he believes investors could expect to earn 7-8% through such funds over a three-year period.Financial planners point out that a buoyant equity market, dwindling returns from arbitrage and a fall in interest rates have seen schemes increase their equity exposure over the past year.Average long positions that were 30-35% pre-Covid have gone up to 35-40%, said Alok Agarwala, chief research officer, Bajaj Capital. Most schemes in the category follow a flexi-cap approach while allocating to equities with a bulk of allocation to large caps with small tactical bets in the mid- and small-cap space. Similarly, in the debt space, allocation is largely made to AAA paper with fund managers staying away from duration risk.It is important that investors opt for funds that show consistency in performance, can protect downside risk and offer good risk-adjusted returns, Agarwala said. He recommends Kotak Equity Savings, Edelweiss Equity Savings and ICICI Prudential Equity Savings Fund.A big draw to these funds, according to financial planners, is taxation. Most of these funds are taxed as equity funds which means an investor who sells after one year pays only 10% long-term capital gains tax, which leads to better post-tax returns when compared to debt funds. 84125001

from Economic Times https://ift.tt/2SNCQCx