In an environment where investors seek the benefits of equity taxation without fully embracing equity market volatility, equity savings funds offer a balanced solution.

These hybrid schemes typically allocate across three avenues — equities, debt and arbitrage — with roughly 30–35 per cent in each segment.

By combining cash equity and arbitrage positions, they maintain over 65 per cent exposure to equity instruments, thereby qualifying for favourable equity taxation. This structure makes them particularly appealing to conservative investors who aspire for returns superior to traditional fixed income, yet prefer to avoid the sharper swings associated with pure equity funds.

Mirae Asset Equity Savings Fund has now completed seven years, making it eligible for inclusion in the bl.portfolio Star Track MF Rating process. In the latest edition, the fund has secured a 4-star rating under the framework. Since its launch in December 2018, it has delivered a compounded annualised growth rate (CAGR) of 11.3 per cent.

Asset allocation

The fund operates with a defined structure that blends cash equities, arbitrage strategies and high-quality debt to deliver relatively stable returns with moderated downside risk. It typically maintains net equity exposure in the 37–38 per cent range, within a historical band of 36 to 45 per cent. Gross equity exposure is kept above 65 per cent by combining cash equity with arbitrage positions. The arbitrage component is primarily used to bridge the gap between net equity and the 65 per cent threshold, rather than to actively chase arbitrage spreads.

Changes in net equity exposure within the permitted range are guided by a valuation framework that compares prevailing market price-to-earnings and price-to-book ratios with their long-term averages over the past 12–13 years. Currently, the allocation stands at about 40 per cent in cash equity, 25 per cent in arbitrage and 35 per cent in debt.

Portfolio strategy

Within the equity portion, stock selection is anchored in sustainable double-digit revenue growth visibility over four to five years, return on capital employed above 12–12.5 per cent post-tax, rigorous assessment of management quality and balance sheet strength, and discounted cash flow-based valuation approach. The portfolio broadly follows an 80–85 per cent growth and 15–20 per cent value orientation, with a core-plus-tactical overlay and a minimum three-year investment horizon.

Sectorally, the fund is overweight in private financials, pharma, consumption excluding staples, select auto names, cement and telecom, while remaining underweight in capital goods, infrastructure and IT services. The constructive stance on consumption is supported by policy measures such as tax reductions and lower EMIs, which the fund manager believes are gradually translating into improved demand conditions.

The fund maintains a clear large-cap bias, with at least 60 per cent of the equity allocation typically invested in large-cap stocks. Currently, this proportion is closer to 72–73 per cent, reinforcing stability within the equity sleeve.

The arbitrage allocation is mechanically calibrated to ensure the scheme maintains at least 65 per cent gross equity exposure to qualify for equity taxation. The equities deployed for arbitrage trades are entirely separate from the long (cash) equity portfolio and are not influenced by the stocks held in the core investment book. These arbitrage positions are designed to exploit price differentials between the cash and futures markets, thereby generating relatively low-risk, market-neutral returns rather than directional equity gains.

On the debt side, the mandate focuses on G-secs and high-quality corporate bonds, with a modified duration of less than four years, emphasising capital stability over yield enhancement. Over the past three years, the portfolio’s modified duration has ranged between 1.8 and 3.5 years. As of January 2026, it stands at 2.7 years. The latest portfolio shows around 11 per cent in AAA-rated corporate bonds, 7 per cent in papers rated AA+/AA and 10 per cent in G-secs. Among the AA-rated exposures are names such as Piramal Finance, Muthoot Finance and Torrent Pharmaceuticals.

Performance

Performance, measured through three-year rolling returns over the past seven years, indicates that the fund delivered an average three-year CAGR of 11.3 per cent, outperforming the category average of 9.5 per cent. During this period, three-year returns ranged between 8.4 per cent and 17.4 per cent, and in nearly 84 per cent of the observations, the fund delivered returns above 10 per cent.

The regular plan carries an expense ratio of 1.4 per cent, lower than the category average of 1.7 per cent, while the direct plan’s expense ratio stands at 0.4 per cent, below the category average of 0.7 per cent.

The fund is suitable for cautious investors seeking relatively lower drawdowns and for those looking to park surplus funds for a two- to four-year horizon while benefiting from equity taxation.

Published on February 21, 2026