After JP Morgan and Kotak, four more fund houses have filed offer documents to launch equity saving funds which use arbitrage strategy to offer tax efficiency to investors.
After
JP Morgan and Kotak introduced a new category of funds as a superior
alternative to MIPs, more fund houses are filing offer documents to launch such
funds.
JP Morgan's Equity Savings Fund saw a reasonably good response from investors which collected Rs. 160 crore during the NFO period.
SBI, Birla Sun Life, ICICI Prudential and Reliance have also filed offer documents to launch these funds, though with a different nomenclature. SBI’s fund is called SBI Equity MIP Fund, Birla Sun Life and Reliance have named it as Equity Savings Fund while ICICI Prudential is planning to launch it as ICICI Prudential Hybrid Savings Fund. All these funds will invest a minimum of 65% in equity using arbitrage strategy and the rest in a combination of debt and equity so that they qualify as equity funds for tax treatment.
SBI Equity MIP Fund will invest a minimum of
65% assets in equity and equity related instruments including derivatives and a
maximum of 35% in debt. Both Birla Sun Life and ICICI Prudential’s Hybrid
Savings Fund follow a similar strategy. These funds are typically benchmarked
against CRISIL MIP Blended Index or a combination of liquid fund index and CNX
Nifty Index.
Supreet Bhan, ED, Head,
Retail Sales, JPMorgan AMC in an earlier interview with
Cafemutual said that such schemes are suited for conservative investors seeking
to beat inflation with minimum volatility. “Our fund addresses the investment
needs of conservative investors in a tax efficient manner. Such risk averse
investors will benefit from the potential for growth through the equity
portion; income with low volatility from the fixed income investment portion
and get better post-tax returns at a similar level of risk compared to hybrid/
MIP funds.”
Financial advisors say that these funds are better alternative to MIPs which offer equity exposure coupled with safety. Unlike earlier, debt fund investors now have to stay invested for three years to qualify for long term capital gains tax. Also, debt funds now attract a higher tax of 20% (with indexation) unlike 10% earlier. Thus, fund houses have packaged these funds in such a way that they offer better tax efficiency, equity exposure coupled with safety.
Hemant Rustagi of Wiseinvest Advisors says that these funds are good from a tax efficiency perspective. “These funds are ideal for investors with a time horizon of 12 to 18 months. The arbitrage exposure can protect the portfolio from any downside in equity markets. With minimum risk these funds provide an opportunity to participate in equities. The debt portion would also be safe as they don’t plan to take any duration calls. If equity markets perform well these funds can give double digit returns.”
Financial advisors say that investors who don’t want to lock in their money for three years in debt funds can consider these equity savings funds.
Vinod Jain of Jain Investments says that these funds can beat 1 year post tax fixed deposit returns even if the equity markets don’t do well. “This a good category which will grow. Currently there is no choice for investors who have a time horizon of one to three years. These funds are best suited for individual investors.”
Going by the interest generated by this category, many more fund houses are likely to come up with similar funds.
