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Equity savings funds are hybrid funds that invest in a mix of equities, debt and arbitrage opportunities in a dynamic manner, designed to strike a balance between growth (referred to equities) and stability (referred to debt). While the equity-linked part of the scheme taps growth in a rising market, the hedged portion protects returns in a falling market.

In this special series, called ‘Seekho Paiso ki Bhasha’ (Learn the Language of Money), Kotak Mutual Fund MD and CEO Nilesh Shah simplifies complex market concepts in a candid way.

Watch: https://youtu.be/BaAkIkY6pnM?si=ArT5WV4k0yjYaJlP

The market veteran highlights that equity savings funds offer four main benefits:

“These funds combine returns with stability… What makes equity savings schemes unique is that debt and arbitrage provide stability while cash equity provides acceleration and growth,” he explains.

For starters, equity savings schemes allocate investments in three categories:

Pure equity works favourably in a rising market, arbitrage offers market neutrality and debt protects the portfolio in a falling market, offering slight changes in the NAV in tandem with changes in benchmark interest rates, says Shah.

“Debt and arbitrage provide stability, while cash equity provides acceleration and growth,” he adds.

Many a time, what happens is that investors don’t really need money, but they end up liquidating their investments out of the sheer fear in a falling market. Investments work in the long run,” elaborates Shah.

Emphasising the need to stay committed to investments to achieve growth, the market veteran says that investments are investments only if they happen over the long term. “What happens in the short term is speculation, not investment,” says Shah.

It is important for investors not to panic in falling markets while staying focused on their long-term goals.

Recalling an age-old market adage, he said: "It’s not timing the market but time in the market that makes money for you, which encourages people to endure market volatility to stay committed to their investments.”

Shah explains that what distinguishes equity savings schemes from equity schemes is the dynamic allocation to equities. “In equity savings schemes, equity allocation is linked to market valuation… In markets with expensive valuations, these funds have lower equity allocations, like 10 per cent, which goes up to 50 per cent in inexpensive markets,” he says.

The market veteran also points out that equity allocations in equity savings funds have averaged around 30 per cent over the past few years, adding that these funds automatically sell equity in a rising market and buy in a falling market.

Ultimately, it is the appropriate combination of a good fund house and a good fund manager that goes a long way in making money for investors, he concludes.

The ‘Seekho Paiso ki Bhasha’ series is aimed at breaking down investment concepts into simple terms.

An investor education and awareness initiative by Kotak Mahindra Mutual Fund

Visit: https://www.kotakmf.com/iap-disclaimers/ to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds, procedure w.r.t. change of address, phone number, bank account details, etc. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints and grievance redressal, investors may reach out to the AMCS and/or Investor Relations Officer. Additionally, investors may also lodge complaints on https://scores.gov.in if they are unsatisfied with the resolution given by AMCS. SCORES portal facilitates you to lodge your complaint online with SEBI and subsequently view its status.

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

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