SBI Mutual Fund is the sixth fund house to launch the new breed of equity funds which dabble in equity, debt and arbitrage opportunities.
Earlier, JP Morgan, Kotak, ICICI Pru, Reliance and Birla Sun Life had launched similar funds.
These funds aim to provide income, growth and tax efficiency. Similar to other equity savings funds, SBI Equity Savings Fund will also invest in arbitrage opportunities in the cash and derivatives segment of the equity market and in equity.
“The scheme will be at a lower risk level than regular equity-based funds/balanced funds as the limited directional equity exposure (in the range of 20% to 50%) reduces the volatility and ensures disciplined rebalancing,” said a press release issued by SBI MF.
SBI Equity Savings Fund would have 65%-90 % exposure to equity including derivatives (out of which the cash-future arbitrage will be in the range of 15% – 70% and net long equity exposure will be in the range of 20% – 30%). The fund will invest 10%-35% in debt and money market instruments (including margin for derivatives). The fund will be benchmarked against CNX Nifty (30%) and Crisil Liquid Fund Index (70%).
Financial advisors say that these funds are better alternative to MIPs which offer equity exposure coupled with safety. Fund houses started launching these funds after the Budget ended the tax advantage which debt funds enjoyed over other fixed deposit products. Long term capital gains tax from non-equity oriented funds is now taxed at 20% tax after indexation unlike 10% earlier from April 01, 2014.
Unlike earlier, debt fund investors now have to stay invested for three years to qualify for long term capital gains tax. Thus, fund houses have packaged these funds in such a way that they offer better tax efficiency, equity exposure coupled with safety.
We asked advisors whether it is worth investing in these funds.
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.”
“These funds will work only if there are enough arbitrage opportunities available in the market. If there aren’t enough arbitrage opportunities, these funds will increase exposure to equity and debt which will make them look like any other balanced fund,” cautions Vidya Bala, Head of Mutual Fund Research.
Vinod Jain of Jain Investments said that these funds can beat 1 year post tax fixed deposit returns even if the equity markets don’t do well. “This is a category which will grow as currently there is no options for investors with a time horizon of one to three years. These funds are well suited for individual investors.”
Let us know your views.
