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Ventura Wealth Clients
3 min Read

The world of investing offers a multitude of options, each catering to varying risk appetites and financial goals. For those seeking a balance between potential growth and capital preservation, equity savings funds (ESFs) emerge as a compelling choice. This blog post dives deep into the intricacies of ESFs, exploring their characteristics, benefits, potential drawbacks, and how they compare to other investment options.

What are equity savings funds?

Let's start at the very basics and understand what are equity savings funds. ESFs are a unique hybrid mutual fund category that blends elements of equity and debt instruments. Here's a breakdown of their composition:

  • Equity Allocation (30-35%): ESFs invest a portion of their assets in equity stocks, offering the potential for capital appreciation over the long term. This exposure allows investors to participate in the growth potential of the stock market.
  • Debt Allocation (65-70%): The majority of the fund's assets are invested in fixed-income instruments like bonds, debentures, and government securities. This debt allocation provides stability and income generation, mitigating the volatility associated with pure equity investments.
  • Arbitrage Opportunities: Some ESFs employ arbitrage strategies to exploit price inefficiencies between cash and derivative markets. This can potentially generate additional returns for investors.

Why you should include equity savings funds in your portfolio

  • Balanced Risk-Reward Profile: The strategic mix of equity and debt in ESFs offers a balance between growth potential and risk mitigation. Compared to pure equity funds, ESFs tend to be less volatile, providing a smoother investment experience.
  • Tax Efficiency: ESFs are taxed as equity funds, benefiting from Long-Term Capital Gains (LTCG) tax advantages if held for over one year. This translates to potentially lower tax liabilities compared to fixed-income instruments.
  • Potential for Higher Returns than Fixed Deposits: While offering more stability than pure equity investments, ESFs have the potential to generate higher returns than traditional fixed deposits over the long term.
  • Suitable for Various Investor Profiles: ESFs can cater to a wider range of investors, from those with a moderate risk appetite seeking some growth potential to conservative investors seeking enhanced returns compared to fixed deposits.

Potential drawbacks of equity savings funds

  • Market Volatility: Despite the debt allocation, ESFs are still susceptible to market fluctuations, especially during periods of significant equity market downturns.
  • Lower Return Potential Compared to Pure Equity Funds: The inclusion of debt instruments in ESFs can potentially limit the overall return potential compared to pure equity funds. Investors seeking aggressive growth might find ESFs less suitable.
  • Dependence on Fund Management: The performance of an ESF heavily relies on the skill and experience of the fund manager, particularly regarding stock selection and arbitrage strategies.

Equity savings funds vs other options

Let's compare ESFs to other popular investment options to understand their relative positioning:

  • Equity Savings Funds vs Fixed Deposits (FDs): Fixed deposits offer guaranteed returns and minimal risk, but their potential returns are often lower than inflation, leading to potential erosion of purchasing power over time. ESFs can offer a better hedge against inflation while providing some growth potential.
  • Equity Savings Funds vs Debt Funds: Debt funds invest primarily in fixed-income instruments and offer predictable returns with lower volatility compared to ESFs. However, their potential returns might also be lower than ESFs.
  • Equity Savings Funds vs Balanced Funds: Similar to ESFs, balanced funds combine equity and debt investments. However, the allocation percentages can vary, with balanced funds sometimes having a higher equity allocation than ESFs. This can translate to higher potential returns but also increased risk.
  • Equity Savings Funds vs Pure Equity Funds: Equity funds offer the highest growth potential but also come with the highest level of risk. For investors seeking capital preservation along with some growth, ESFs provide a more balanced option.

Investing in equity savings funds: key considerations

  • Investment Horizon: ESFs are suitable for investors with a medium to long-term investment horizon (ideally 3-5 years or more) to ride out market fluctuations and benefit from their potential for capital appreciation.
  • Risk Tolerance: While offering some stability, ESFs are not risk-free. Assess your risk tolerance and ensure you're comfortable with potential market volatility before investing.
  • Fund Selection: Carefully research different ESF options, comparing their investment strategies, expense ratios, past performance (remember past performance is not necessarily indicative of future results), and the reputation of the fund house before making an investment decision.


Equity savings funds offer a compelling proposition for investors seeking a balanced approach to wealth creation through mutual fund investment. By combining the growth potential of equities with the stability of debt instruments, ESFs can provide a smoother investment experience with the potential for attractive returns over the long term.