We have always been strong advocates of equity savings funds when it comes to investors' goals of generating regular income. These funds provide investors with conservative equity exposure, built-in asset allocation, and automatic rebalancing. Equity savings funds typically invest about 30 per cent each in debt, equity, and arbitrage opportunities. The inclusion of arbitrage opportunities allows for equity-like taxation while maintaining a risk-return profile similar to debt. Effectively, investors get a portfolio consisting of 65 per cent debt and 35 per cent net equity while still enjoying the benefits of being classified as an equity fund. For a more detailed understanding of how these funds work, please refer to this article . The equity savings category has found itself in a favourable position after the removal of the indexation benefit for categories with less than 35 per cent equity exposure. This is because equity savings funds are now the only category that provides a conservative equity exposure (limited allocation of about 30-40 per cent) while still being subjected to equity taxation. For more information on recent tax changes, you can refer to this article . In summary, investors in these funds will continue to be taxed at 10 per cent if they hold their investments for more than a year. On the other hand, investors in other debt-oriented funds will be subject to taxes based on their respective tax slabs, regardless of the holding period. For someone in the 30 per cent tax bracket, this amounts to a significant additional tax burden. Return to form After a relatively subdued 2022, equity savings funds are experiencing a rebound in returns, with the category delivering median returns of about 4 per cent in less than six m
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