Equity Savings Fund

What it answers

Can you get the friendlier tax treatment of equity funds without taking on the full ride of the stock market? Equity savings funds are built for exactly that middle ground, sitting between a pure equity fund and a conservative hybrid.

How the three buckets work

These are open-ended hybrid schemes in SEBI's classification, and they split money across three sleeves. To qualify as equity-oriented, the fund keeps at least 65% in equity and arbitrage combined. Of that, only a portion, often around 20-40%, is held as unhedged equity for actual market upside. The rest is arbitrage, buying in the cash segment and selling the matching futures to capture a small, low-risk spread that behaves like fixed income. A further slice, at least 10%, goes into debt for stability and income.

The trick is that arbitrage counts as equity exposure for tax purposes but carries almost no directional market risk. So the fund can show a 65%-plus equity figure on paper while the true at-risk equity is far smaller.

The tax angle

This structure earns equity taxation. After the July 2024 changes, gains on units held over 12 months are taxed as long-term capital gains at 12.5%, with the first ₹1.25 lakh of equity LTCG across all your equity investments tax-free each year. Units sold within 12 months attract short-term capital gains at 20%. That is materially better than how debt funds are now taxed at slab rates, which is part of why these schemes drew fresh interest after the debt-fund tax change.

Who it suits

Equity savings funds appeal to conservative investors, retirees, or anyone parking money for a few years who wants returns a notch above debt with lower drawdowns than full equity. They are not a substitute for an equity fund's long-run growth, but they smooth the journey while keeping the tax bill efficient.