Dhirendra Kumar talks about the incomparable nature of equity savings funds and fixed deposits
12-Aug-2019
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What is the difference between equity savings funds and fixed deposits? Does the former provide better returns? Also, in the current scenario, which fund categories are performing better in terms of returns?
- Aashish
Equity savings funds invest one-third in equity, one-third in arbitrage and one-third in fixed income. This scheme is absolutely not comparable to fixed deposits, as with fixed deposits, you are guaranteed of your principal as well as interest, which is taxable. Equity savings funds are a conservative option for your equity investments; however, it can witness intermittent declines in value.
To answer your last question, I would say that the best way to look at the performance of fund categories is by comparing their performance from the time you start investing with the timeframe till you wish to stay invested. So, the comparison can be over one-, three-, five- or 10-year time frame.
If you plan to invest for one year, don't go beyond ultra-short-duration fund. If you are planning to invest regularly with a time horizon of five years, then a tax-saving fund or a multi-cap fund will do the needful. If you are investing for ten years and you are able to withstand market declines without getting nervous, then opt for a combination of one multi-cap and a small-cap fund. Small caps can be extremely unnerving but reasonably rewarding over a long period of time.
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