Three tax-efficient mutual funds for safe, short-term investors

Investors seeking stability with a touch of growth have typically turned to conservative hybrid funds . These funds combine debt investments (for safety) with a small portion of equity (for growth) to create a balanced, low-risk portfolio. However, their structure works like a double-edged sword. Although its debt features provide stability to your investments, the gains from these funds are now taxed as per your income tax slab rate. Which means it is not very tax-efficient for those who fall under the highest 30 percent tax bracket. This is where three equity savings funds come to the rescue. Equity savings funds offered by ICICI Prudential , Franklin India and PGIM India have embraced a more tax-efficient model, making them an attractive option for conservative investors looking for stability, tax efficiency and low volatility. These three tax-efficient equity savings funds are slightly different to the other equity savings funds widely available in the market. While these three funds also invest in equity, debt and arbitrage strategies, they limit their net equity exposure to just 15-16 per cent, compared to the category average of 30 per cent. That said, they continue to keep their gross equity exposure above 65 per cent with the help of arbitrage positions. This structure helps them get the added benefit of equity-like tax treatment. So, if you stay invested in any of these three funds for over a year, gains only above Rs 1.25 lakh will be taxed at