What is your view on equity-savings schemes for a risk-averse long-term investor who wants to shift about 60 per cent of his savings from bank deposits to these funds?
Equity-savings funds have a good asset allocation, with about one-third in equity and two-thirds of its assets invested in fixed income. This type of asset allocation is very important for retirees, more so because of the declining interest rates on deposits. If you are a retiree, then your expenses will go up each year because of inflation. You should track your monthly expenses for a calendar year so that you can see if your expenses last year were Rs 8 lakh and this year they have increased to Rs 8.5 lakh, then the inflation is Rs 50,000. The simple rule for retirement investing is that you can consume only your inflation-adjusted gains. If your investments are posting a return of 10 per cent and your inflation is 5 per cent, then you can take out only 5 per cent to keep the value of your investments intact. Otherwise, you will start eating into your capital.
The equity savings funds have an asset allocation that can help you beat inflation or at least, generate superior inflation-adjusted returns in the long term and also compensate for the declining returns on the fixed income.
But there are few things that I want equity savings funds to incorporate. Firstly, I would like them to charge lower expenses. Secondly, I would like them to be far more disciplined in terms of rebalancing and maintaining asset allocation.
Axis Equity Saver and ICICI Prudential Equity Savings are two funds that are most disciplined in terms of asset rebalancing. Hence, these two schemes look very promising in the category.