Fund Radar: Equity savings vs Arbitrage vs Income+Arbitrage

With the withdrawal of indexation benefits on debt funds, the landscape has shifted. Investors in debt funds – regardless of their holding period – now face capital gains taxed at their income slab rate. In response, the fund industry has begun offering new products that can deliver low-volatility returns while benefiting from equity-like taxation. Among these, equity savings, arbitrage and the newly launched ‘income + arbitrage funds’ are emerging as options for investors looking to reduce tax drag without increasing portfolio risk. At a glance, they may appear similar in tax treatment, but in reality, they differ significantly in construction, volatility and use cases. Equity savings funds Equity savings funds invest with a blend of equity, arbitrage and debt. The presence of arbitrage helps these funds retain a gross equity allocation of 65 per cent, qualifying them for equity taxation. However, since arbitrage behaves more like fixed income, it’s the net equity exposure that determines risk and return. While these funds generally have one-third of the money in equity, arbitrage and debt each, some have now started maintaining a lower net equity al