My friend is suggesting that I should invest in equity savings fund instead of fixed deposits because of better returns and lower tax. Can someone explain what are these and how to invest?Asked
Equity Savings Fund is a new variant of mutual fund wherein investments are made in equity, debt and arbitrage.
People are now looking for alternate investing avenues in place of fixed deposits. The investors looking to take lit bit more risk as compared to fixed deposits ae now investing in equity savings fund. Equity savings funds invest the total corpus in three parts: one-third in debt, one-third in arbitrage and one-third in pure equity.
Reasons for investing in Equity Savings Fund instead of fixed deposits are:
· Since just one third investment is made in equity, it makes equity savings fund less risky as compared to balanced fund.
· The interest earned in case of fixed deposits is not able to beat inflation
· Interest on fixed deposits is taxed
· The fund is useful to secure predictable returns
· Preferred over debt funds since in debt funds the holding period has increased from 1 to 3 years.
· Return of around 8 to 9% is expected from the fund, which is higher than fixed deposits.
· Since this fund has equity, holding period is 1 year i.e if fund is held for 1 year then LTCG is exempted and if held for less than 1 year then STCG is taxed at 15%
Following Equity Savings Funds can be invested in: