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ARC required to grow this fund category to its rightful size

Radhika Gupta, CEO, Edelweiss AMC

1st December 2017

In a nutshell

Radhika shares some sobering data that points out just how far behind equity savings funds have dropped vs balanced funds - their more aggressive hybrid counterpart. With so much going for equity savings funds in terms of their tax efficiency, inflation fighting capability and lower volatility, why is the category not getting its rightful mind and market share in the booming hybrids space? Radhika advocates a 3 pronged approach to correct this situation - the ARC approach as she says - Awareness, Right returns expectations and Communication. Read on as Radhika takes us through what needs to be done to grow this category to its rightful size and how Edelweiss' product in this category stacks up on the league tables.

WF: Would it be fair to say that growth of the equity savings category has not done adequate justice to its potential, given its ability to offer regular cash flows coupled with low volatility inflation protection?

Radhika: Growth in Assets of Balanced and Equity Savings Fund category:


If we see this AUM data, Balanced funds have added 1.6 lakh crore while Equity savings category has added only 13,000 crore since Jan 2014. Looking at this surely tells that we as an industry has not done justice with to potential Equity Savings Fund category has.

There certainly is great potential for this category to grow further as it provides an investor with myriad benefits and is a great investment option for first time investors. In terms of investor participation, we seem to have merely scratched the surface. Investment in equities is largely dominated by balanced funds, which have a certain vintage and track record. However, it is important to understand that the two products are different and hence,are capable of adding multiple value to an investors' portfolio.

The equity savings fund category is currently in a fairly nascent stage and is still evolving in terms of investor acceptability. The track record for many of these funds is just 2 to 3 years. Edelweiss Equity Savings Advantage Fund (Erstwhile JPMorgan India Equity Income Fund) was the first fund to be launched in this category.

WF: Why do you think this is a good product for investor who is just stepping into equities?

Radhika: It is common knowledge that the risk associated with equity investing is usually higher than that associated with Fixed deposits or other fixed income assets. However, an Equity Savings fund mitigates this risk by typically investing 30-40% of the portfolio in stocks and the balance in fixed income and arbitrage strategies. Through the use of arbitrage strategies, the fund also maintains a 65% gross exposure to equities, thereby providing investors equity taxation benefits as well. Hence, this is one of the best product for an investor who is migrating from a relatively safe investment like FDs to equities. As opposed to a balanced fund, the risk profile of an Equity Savings fund is best suited for a conservative investor. This fund suitable for retirees and conservative investors looking beyond traditional fixed income products.

The category scores high when compared with traditional investment avenues.


WF: What do we need to do better to position this category as a superior, tax efficient retirement income solution?

Radhika: The onus lies upon the industry to educate the investors and make them aware of the relative advantages of an Equity savings fund. We believe that this can be tackled with a 3 pronged approach ie. ARC (Awareness, Right return expectations and communication).

Awareness: Investors can make informed decisions only if they are aware of the options that are available to them. As discussed before, an equity savings fund has myriad benefits and is well suited for conservative investors who are just dipping their toes into the equity markets. Investors should be aware of the specifics of this investment category. We should move forward and along with SIPs now start talking about such specific solutions in Investor Awareness Programs.

Right return expectations: Setting right return expectations is paramount in asset allocation. Investor who is just moving beyond fixed deposits need not be looking for very high returns but, something which is fixed deposits plus.

These funds may generate lower absolute returns when compared to balanced funds and equity funds, given the relatively lower exposure to stocks. However, investors must be cognizant of the additional volatility that comes with investment in balanced or pure equity funds, which is relatively lower in an Equity savings fund.

Hence, setting moderate and right return expectations will be very important for the growth of this category.

Communication: it really does all boil down to communication. Regular, honest and upto date communication on thecategory benefits and returns will lay a strong foundation for investment in such funds.

WF: Why one should invest in this category now?

Radhika: Investors, till last year, invested in fixed deposits. But now with fallingFD rates, which are at decadal low levels,investors will need to look beyond FDs. Small savings scheme rates have also come down significantly and will continue to be low given that RBI is committed to keep inflation lower at 4%. For such investors adding a small booster of equity to their portfolios is imperative. Here, Equity savings funds make a cut and are apt in current market conditions.

WF: How are the equity and debt portions of your Equity Savings Advantage Fund managed in terms of strategy and positioning?

The Edelweiss Equity Savings Advantage Fund (ESAF) aims to generate reasonable returns with lower risk and higher income stability. It aims to achieve this through judiciously managing the equity and debt portions of the fund.

Equity - the fund identifies investable opportunities mainly in the large-cap universe with selective exposure to mid-caps. The foundation of our approach to equity investing lies in GARP (Growth at Reasonable Prices) where we look to invest in companies that are relatively undervalued and have the potential for sustainable future growth.

Debt - the debt portion follows an accrual strategy where investment in debt instruments is done with an objective to generate regular income while managing volatility.

Arbitrage + Special situation - these strategies are employed to reduce fund volatility and capitalise on intermittent pricing anomalies and special situation opportunities.


WF: What returns one can expect from this fund in the long term?

Radhika: A simple simulation shows that the strategy has potential to generate reasonable returns and protect capital.


For example: If Equity portion return is 10% and returns from arbitrage and fixed income portion is 7% then total portfolio return will be 8.1%

The above table is illustration of returns simulation under different scenarios. Assuming different return scenarios in Equity from -10% to 25% and in Fixed Income+ Arbitrage 7% to 9%, table demonstrated return exception using this particular asset allocation strategy. This is gross of expenses

WF: How does your fund stack up on performance within the equity savings category?

Radhika: The fund has a reasonably good performance track record within its peers.



Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Performance as on 31st Oct 2017. * CAGR Return.

  1. Different plans shall have different expense structure. The performance details provided herein are of Regular Plan of Edelweiss Equity Saving Advantage Fund. Returns are for Growth Option only. Since Inception returns are calculated on Rs. 10/- invested at inception of the scheme. In case the start/end date is non business day, the NAV of previous day is used for computation.

  2. The scheme is currently managed by Mr. Bharat Lahoti (managing this fund from September 18, 2017) , Mr. Hiten Shah (Managing this fund from September 18, 2017) Mr. and Dhawal Dalal (Managing this fund from November 28, 2016 ).. Please refer below link for name of the other schemes currently managed by the Fund Manager.

  3. Since the scheme is in existence for more than 1 year but less than 3 years hence performance data for 3 years and more is not provided

Fund Performance (factsheet link)



Disclaimer: Ms Radhika Gupta is Chief Executive Officer of Equity of Edelweiss Asset Management Limited and the views express above are her own.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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