Can someone please explain to me what are these funds and what are the main differences? Hybrid funds, equity saving fund and asset allocation funds?Asked
All these funds categories of mutual funds in which the capital of the investor is diversified across different financial instruments such as stocks, bonds, debt securities, etc to limit the risks. Each of these funds has different composition.
Equity savings funds:
Asset allocation funds are similar to balanced funds where capital is diversified across various asset classes to minimize the risk exposure.
They are broadly classified into two categories:
All the above mentioned categories of mutual funds basically differs in their allocation percentage in different funds. Hence, the risks and returns varies as per the components of the fund.
Hybrid mutual funds or balanced funds are the funds which invest in a combination of categories like large cap, small cap, mid cap and debt instruments. Some of the key features of these funds are:
Equity saving fund is different from balanced funds as they invest 60-70% of the amount in equity and the remaining in fixed income instruments. While the percentage of equity investments in hybrid funds depend on the asset allocation. The percentage can be higher for equity or debt.
Key features of this fund are:
L&T Equity Savings Fund
Tata Regular Saving Equity Fund
Asset allocation funds as the name suggests adjust the percentage allocation of fixed and variable income securities based on market conditions. Hybrid funds and equity saving funds are types of asset allocation funds.
Diversifying the investments across multiple asset classes helps earn consistent returns and also allows to mitigate risks. Assets can be equity-oriented, debt-oriented or even other asset classes like gold, other metals and commodities.
Dynamic asset allocation funds allow changing the proportion of assets based on market performance while static asset allocation funds carry a pre-defined percentage for assets.
Union Asset Allocation Fund
IDFC Asset Allocation FoF
A hybrid fund is an investment fund which is diversified among 2 or more asset classes. It is also known as Asset Allocation Fund.
Hybrid funds or the balanced schemes invest into a mix of equity and debt. Equity-oriented hybrid schemes invest at least 65 per cent of the corpus in equity. These schemes are less volatile than pure equity funds because of their mixed portfolio. The debt investments provide stability in times of volatility.
These funds are suitable for novices in the stock markets and very conservative equity investors.
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.
Since one third investment is made in equity, it makes equity savings fund less risky. Return of around 8 to 9% is expected from the fund. 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%.
Few good hybrid and equity savings fund to invest in are: