Widely read:
Should I invest a lumpsum in equity savings funds? Are they as safe as debt funds?
- Preeti
Equity savings funds are not as safe as debt funds but are far more safe than equity funds. Equity savings funds are typically one-third equity, one-third arbitrage and one-third debt. Arbitrage position is almost like a liquid fund. In arbitrage, the fund manager buys a share and at the same time sells it in futures market. He is actually not exposed to equity risks for this one-third of his investment. The tax treatment is like equity because arbitrage position is technically equity but by character it is fixed income. Equity savings funds qualify as a very tax efficient way of investing with low risk but it is not as safe as a debt fund because around 35 per cent is exposed to pure equity. However, it is not very risky. It is an excellent way of investing if you are holding it for three to five years and if you are a risk averse person and also want to optimise the returns in a tax-efficient way. And you can very well invest a lumpsum because this is something where only one-third of your money will be exposed to equity.
This article was originally published on March 07, 2019.
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