{"id":42343,"date":"2026-08-18T13:30:00","date_gmt":"2026-08-18T08:00:00","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=42343"},"modified":"2026-08-16T22:44:27","modified_gmt":"2026-08-16T17:14:27","slug":"what-are-equity-savings-funds-how-they-work-and-who-should-invest","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/","title":{"rendered":"what are equity savings funds: how they work and who should invest"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_86 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/#how_they_work\" >how they work<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/#tax_advantage\" >tax advantage<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/#performance_and_drawdowns\" >performance and drawdowns<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/#who_should_consider_them\" >who should consider them<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/#how_to_select_a_fund\" >how to select a fund<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/#frequently_asked_questions\" >frequently asked questions.<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n\n<p class=\"wp-block-paragraph\">equity savings funds are a type of hybrid mutual fund. they invest across three categories within a single structure: equity, debt, and arbitrage&nbsp;<a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>. the combination of cash equity and arbitrage positions ensures the fund maintains over 65% gross equity exposure, qualifying it for equity taxation&nbsp;<a href=\"https:\/\/www.thehindubusinessline.com\/portfolio\/mutual-funds\/blending-equity-debt-arbitrage\/article70651881.ece#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">this structure makes them suitable for conservative investors seeking returns better than fixed deposits without taking on significant market risk&nbsp;<a href=\"https:\/\/www.thehindubusinessline.com\/portfolio\/mutual-funds\/calm-capital-compounding\/article70926134.ece#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"how_they_work\"><\/span><strong>how they work<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">the portfolio is split across three segments.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>equity.<\/strong>&nbsp;the fund manager invests in stocks. the net equity exposure, after hedging, typically stays between 15% and 40%&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. the equity portion adds to returns when markets perform well&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>arbitrage.<\/strong>&nbsp;the fund exploits price differences between cash and derivatives markets. this generates low-risk, market-neutral returns&nbsp;<a href=\"https:\/\/www.thehindubusinessline.com\/portfolio\/mutual-funds\/blending-equity-debt-arbitrage\/article70651881.ece#1\" target=\"_blank\" rel=\"noopener\"><\/a>. the arbitrage portion helps reduce risk by lowering the net equity exposure&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>debt.<\/strong>&nbsp;the fund invests in high-quality bonds and government securities. the debt portfolio is managed like a short-duration fund, with modified duration usually between 2 and 3.4 years&nbsp;<a href=\"https:\/\/www.thehindubusinessline.com\/portfolio\/mutual-funds\/calm-capital-compounding\/article70926134.ece#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">the allocation across these segments is fairly balanced. a typical fund allocates roughly 30-35% each to equities, arbitrage, and debt&nbsp;<a href=\"https:\/\/www.thehindubusinessline.com\/portfolio\/mutual-funds\/calm-capital-compounding\/article70926134.ece#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.thehindubusinessline.com\/portfolio\/mutual-funds\/blending-equity-debt-arbitrage\/article70651881.ece#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"tax_advantage\"><\/span><strong>tax advantage<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">because these funds maintain at least 65% gross equity exposure, they are treated as equity-oriented funds for tax purposes&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>long-term capital gains.<\/strong>\u00a0held for more than one year. gains above \u20b91.25 lakh are taxed at 12.5%. gains within the limit are tax-free\u00a0<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/li>\n\n\n\n<li><strong>short-term capital gains.<\/strong>\u00a0held for up to one year. taxed at 20%\u00a0<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">this is a significant advantage over debt funds, which are taxed at the investor&#8217;s income tax slab rate. for someone in the 30% bracket, the difference is substantial&nbsp;<a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"performance_and_drawdowns\"><\/span><strong>performance and drawdowns<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">equity savings funds usually suffer much lower drawdowns than pure equity funds&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. during the correction phase between september 2024 and march 2025, the category delivered negative 1.24% returns, compared to aggressive hybrid funds at negative 8.58% and balanced advantage funds at negative 6.17%&nbsp;<a href=\"https:\/\/www.nism.ac.in\/blog\/hybrid-funds-vis-a-vis-equity-funds-long-term-and-correction-phase\/\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">over longer periods, the category has delivered average annual returns of around 7-9%&nbsp;<a href=\"https:\/\/www.valueresearchonline.com\/stories\/222660\/debt-vs-hybrid-funds-investment-comparison\/#tab-5#1\" target=\"_blank\" rel=\"noopener\"><\/a>. a \u20b910 lakh investment in the category over five years would have grown to roughly \u20b913.76 lakh post-tax&nbsp;<a href=\"https:\/\/www.valueresearchonline.com\/stories\/222660\/debt-vs-hybrid-funds-investment-comparison\/#tab-5#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">however, investors should not expect the full upside of equities. the open equity exposure remains limited&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. these funds are not substitutes for fixed deposits. they do not offer either capital protection or predictable returns&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"who_should_consider_them\"><\/span><strong>who should consider them<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>suitable for.<\/strong>&nbsp;investors with a conservative-to-moderate risk profile who want stability but can accept some volatility&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. investors targeting around 8-9% pre-tax returns&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. those building a medium-term corpus for a home down payment or car in about three years&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. investors in higher tax brackets who want the benefit of equity taxation&nbsp;<a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>not suitable for.<\/strong>&nbsp;highly conservative investors with a fixed-income mindset who expect definite returns&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. senior citizens who cannot tolerate variation in returns&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. investors with a very short horizon of one year&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. those focused on long-term wealth creation with a 5-10 year horizon can earn better returns in other products&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"how_to_select_a_fund\"><\/span><strong>how to select a fund<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">investors should not select a fund only on the basis of one-year trailing returns. rolling returns should be used to assess performance consistency across different periods&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. the fund&#8217;s performance should be compared with its benchmark and category average. risk-adjusted return metrics like the Sharpe ratio should also be checked&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">the actual percentage allocation to equity should be checked. higher equity exposure can boost returns when equity performs well, but it can hurt returns when it performs poorly&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>. the market-cap allocation should also be checked. a higher mid- and small-cap exposure may require a longer horizon as downside risk increases&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"frequently_asked_questions\"><\/span><strong>frequently asked questions.<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>1. what is an equity savings fund?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">a hybrid mutual fund that invests across equity, debt, and arbitrage. it maintains over 65% gross equity exposure to qualify for equity taxation&nbsp;<a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.thehindubusinessline.com\/portfolio\/mutual-funds\/blending-equity-debt-arbitrage\/article70651881.ece#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>2. how is an equity savings fund taxed?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">ltcg at 12.5% on gains above \u20b91.25 lakh if held for more than one year. stcg at 20% if held for up to one year&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>3. is an equity savings fund safer than an equity fund?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">equity savings funds usually suffer much lower drawdowns than pure equity funds. during market corrections, they tend to lose less&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.nism.ac.in\/blog\/hybrid-funds-vis-a-vis-equity-funds-long-term-and-correction-phase\/\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>4. what is a realistic return expectation?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">category returns have averaged around 7-9% over recent periods. a \u20b910 lakh investment over five years grew to roughly \u20b913.76 lakh post-tax&nbsp;<a href=\"https:\/\/www.valueresearchonline.com\/stories\/222660\/debt-vs-hybrid-funds-investment-comparison\/#tab-5#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>5. who should invest in these funds?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">investors with a conservative-to-moderate risk profile who want stability but can accept some volatility. those targeting around 8-9% pre-tax returns. investors in higher tax brackets who want equity taxation benefits&nbsp;<a href=\"https:\/\/www.business-standard.com\/amp\/finance\/personal-finance\/equity-savings-funds-a-sound-option-for-stability-seeking-investors-126061500128_1.html#1\" target=\"_blank\" rel=\"noopener\"><\/a><a href=\"https:\/\/www.bajajbroking.in\/knowledge-center\/what-are-equity-saving-funds#1\" target=\"_blank\" rel=\"noopener\"><\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>equity savings funds are a type of hybrid mutual fund. they invest across three categories within a single structure: equity, debt, and arbitrage&nbsp;. the combination of cash equity and arbitrage positions ensures the fund maintains over 65% gross equity exposure, qualifying it for equity taxation&nbsp;. this structure makes them suitable for conservative investors seeking returns [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/what-are-equity-savings-funds-how-they-work-and-who-should-invest\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":41,"featured_media":42164,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[992],"tags":[],"class_list":["post-42343","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-equity-funds"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>what is equity savings fund ?<\/title>\n<meta name=\"robots\" content=\"index, follow, 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