Tata Mutual Fund is the latest to launch equity savings fund, a new category which has emerged after the changes in tax structure of debt funds.
The fund house has repackaged its Tata Monthly Income Fund into Tata Regular Savings Equity Fund. Investors in Tata Monthly Income Fund, which manages around Rs. 124 crore, will be migrated to Tata Regular Savings Equity Fund. The fund house has given an exit option to those investors in TATA MIP who do not wish to invest in the new fund.
Tata Regular Savings Fund is similar to the other funds in this category with the only difference that this fund would use a ‘Red Line Strategy’ to mitigate volatility in the equity portion of the portfolio. Tata Red Line Strategy uses trailing PE of CNX Nifty to strategically manage allocation to equity by cutting equity allocation during higher valuation periods and reinvesting at long term average valuations or lower, stated the press release. Under this strategy, the fund will reduce exposure to equity if the standard deviation of Nifty PE reaches 1.57.
To start with, the fund would have 30% allocation to equity and 35% in arbitrage, which would qualify it as equity fund. The remaining portion would be invested in short term debt entrustments. The equity portion will be invested in large cap stocks.
This fund is suited for risk averse investors having a time horizon of up to three years looking at better alternative to debt funds and MIPs. "This new category of fund offering equity exposure coupled with safety is a superior alternative to MIPs. Investors who dont want to lock in their money for three years in debt funds can consider equity savings funds. We are optimistic that this category will grow in future,” said Ritesh Jain, CIO, Tata Mutual Fund.
Benchmarked against CRISIL Liquid Fund (30%), CNX Nifty (35%) and CRISIL Short Term Bond Fund Index (35%), the fund will have 1 % exit load if redeemed before one year.
The equity savings fund category currently has assets under management of nearly Rs. 2,000 crore.