Equity Savings Fund as categorised by the market regulator, SEBI, is a Hybrid Fund. Meaning, it invests in equity and equity related instruments (including derivatives), debt & money market instruments, and would explore arbitrage opportunities. If there are no arbitrage opportunities available, the scheme has the flexibility to invest in debt.

As per the mandate, MAESF will invest upto 90% of its assets in equity and equity related instruments (including hedged and unhedged positions) in normal circumstances and the remaining in debt & money market instruments.

However, if the fund manager is of the view that the economic or market conditions may become unfavourable for investors in equities, MAESF could reduce the allocation to equities, particularly the unhedged position, and as a defensive strategy may skew the portfolio to debt & money market instruments.  

From a risk standpoint, given that MAESF portfolio will typically have a dominant exposure to equity and equity related instruments—including unhedged equities, the scheme is suitable only if you have a moderate-to-high-risk appetite and have an investment time horizon of at least 3-5 years.

From a tax implication standpoint, an equity savings fund is classified as an equity-oriented mutual fund scheme. Hence, if redeemed within a holding period of one year, Short Term Capital Gain Tax (STCG) tax @ 15% will apply. And if redeemed after a period of 1 year, the Long Term Capital Gains (LTCG) in excess of Rs 1 lakh will be taxed @10%.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

Table1: NFO Details

Type	An open-ended scheme investing in equity, arbitrage and debt	Category	Hybrid Scheme - Equity Savings
Investment Objective	To provide capital appreciation and income distribution to the investors by using equity and equity related instruments, arbitrage opportunities, and investments in debt and money market instruments. The Scheme does not assure or guarantee any returns.
Min Investment	Rs 5,000 and in multiples of Re 1 thereafter	Face Value	Rs 10 per unit
Plans	• Direct • Regular	Options	Growth Dividend (Reinvestment & Payout)
Entry Load	Not Applicable	Exit Load	For exit within 365 days from the date of allotment: If redeemed within 1 year (365 days) from the date of allotment: 1% If redeemed after 1 year (365 days) from the date of allotment: Nil
Fund Manager	Mr Sudhir Kedia; and Mr Mahendra Jajoo	Benchmark Index	Nifty Equity Savings Index
Issue Opens	November 26, 2018	Issue Closes:	December 10, 2018

(Source: Scheme Information Document)

How will Mirae Asset Equity Savings Fund allocate its assets?

Under normal circumstances, the Scheme will allocate its assets as follows:

Table 2: MAESF's Asset Allocation

Instruments	Indicative allocation (% of total assets) (Minimum-Maximum)	Risk Profile
Indian Equities and Equity Related Instruments	65% to 90%	Medium to High
i. Equities & equity related instruments (unhedged)*	20% to 45%	High
ii. Equities, equity related instruments and derivatives including index futures, stock futures, index options & stock options etc. as part of hedged / arbitrage exposure.*	20% to 70%	Low to Medium
Money market instruments/debt securities Instruments and/or units of debt/liquid schemes of domestic Mutual Funds	10% to 35%	Low to Medium

In defensive circumstances, the asset allocation will be as under:

Instruments	Indicative allocation (% of total assets) (Minimum-Maximum)	Risk Profile
Indian Equities and Equity Related Instruments	15% to 65%	Medium to High
i. Equities & equity related instruments (unhedged)*	10% to 40%	High
ii. Equities, equity related instruments and derivatives including index futures, stock futures, index options & stock options etc. as part of hedged / arbitrage exposure.**	0% to 55%	Low to Medium
Money market instruments/debt securities Instruments and/or units of debt/liquid schemes of domestic Mutual Funds	35% to 85%	Low to Medium

(Source: Scheme Information Document)

*Equity and Equity related instruments include convertible debentures, equity warrants, convertible preference shares, equity derivatives etc. The Indian equities & equity related securities of companies includes those securities listed on stock exchanges in India and includes ADRs & GDRs. The net long equity exposure is aimed to gain from potential capital appreciation and thus is a directional equity exposure which will not be hedged.

**The derivative positions will be hedged against corresponding positions in either equity or derivative markets depending on the strategies involved and execution costs. On the total portfolio level, the scheme does not intend to take a net short exposure to equity markets. Unhedged positions in the portfolio (investments in equity shares without corresponding exposure to equity derivative) shall not exceed 45% of the net assets.

What will be the Investment Strategy?

To achieve its stated investment objective, MAESF will employ various strategies which seek to exploit available arbitrage opportunities in markets along with pure equity investments and investments in debt and money market instruments.

Equity investments

When investing in equity, the fund manager has the flexibility to invest across market capitalization in portfolio companies.

While constructing the portfolio, the focus would be to have strong growth companies, reflecting the most attractive investment ideas at all points of time. The universe of stocks will comprise majorly of companies having robust business models, enjoying sustainable competitive advantages as compared to their competitors and have high return ratios.

To avoid concentration risk and liquidity risk, the fund manager will try to have a large base of stocks in the portfolio. However, the fund manager does have the flexibility to follow a focussed approach as well.

Further, in pursuance to the investment objective of the Scheme, derivatives would be used to generate income through arbitrage opportunities between cash and derivative market and arbitrage opportunities within the derivative segment subject to SEBI (MF) Regulations. MAESF intends to take positions in derivative instruments like Index Futures, Stock Futures, Index Options and such other derivative instruments as may be permitted by SEBI from time to time.

Debt investments:

MAESF will invest in high-quality debt securities with a portfolio duration based on the interest rate view and money market instruments. The credit quality of the portfolio will be maintained and monitored by using in-house research capabilities of the fund house, as well as inputs from external sources such as independent credit rating agencies.

The investment team will primarily use a top-down approach for taking interest rate view, sector allocation along with a bottom-up approach for security/instrument selection.

Who will manage Mirae Asset Equity Savings Fund?

MAESF will be managed by the duo, Mr Sudhir Kedia and Mr Mahendra Jajoo.

Mr Sudhir Kedia will manage the equity portion of the Scheme. He has over 12 years of total work experience and is a Chartered Accountant (CA), Certified Management Accountant (CMA), and an MBA. He was appointed as the fund manager and key personnel of the Asset Management Company (AMC) last year, with effect from March 14, 2017. His primary responsibility includes Fund Management & Investment Analysis.

Prior to joining Mirae Asset Mutual Fund, Mr Kedia was associated with ASK Investments and

Currently, Mr Kedia co-manages the equity portion of Mirae Asset Hybrid Equity Fund (earlier known as Mirae Asset Prudence Fund) with Mr Neelesh Surana.

Mr Mahendra Jajoo will manage the debt portion of the Scheme. He holds over has over 27 years of experience in the field of financial services including 13 years of experience in Fixed Income fund management. Mr Jajoo is a Chartered Accountant (CA), Company Secretary (ACS) and Chartered Financial Analyst (CFA)          

At Mirae Asset Mutual Fund, Mr Jajoo is responsible for supervising all the debt schemes of the fund house. Prior to joining the AMC, Mr Jajoo was a Director with AUM Capital Markets Ltd. He has also been associated with organizations like Pramerica Mutual Fund (now known as DHFL Pramerica Mutual Fund), Tata Mutual Fund, ABN AMRO Asset Management Ltd and ICICI Group.

Currently, at Mirae Asset Mutual Fund he co-manages/manages Mirae Asset Hybrid Equity Fund (debt portion), Mirae Asset Cash Management Fund, Mirae Asset Dynamic Bond Fund, Mirae Asset Savings Fund, and Mirae Asset Short Term Fund.

The Outlook for Mirae Asset Equity Savings Fund:

While MAESF will mainly invest in equity and equity related instrument under normal circumstance and the balance in debt & money market instruments (including units of debt/liquid schemes of domestic Mutual Funds), how dexterously the fund manager shifts the asset allocation within equities––between unhedged and hedged portion––and from equities to debt during defensive consideration, needs to be seen.

So, the fortune of MAESF will be closely linked to how resourcefully the fund manager handles the asset allocation, and of course, the underlying instruments it holds in the portfolio, even as it follows a mix of a top-down and bottom-up approach to investing backed by certain research parameters.    

In an environment where the near-term sentiments in equity markets will be driven by macroeconomic conditions, global and domestic political developments, along with the outcome of upcoming state and Lok Sabha elections, the markets are expected to remain highly volatile.

Nevertheless, the mandate of the fund could come as precaution provided the fund manager uses it thoughtfully to construct the investment portfolio, both equity (including derivatives) and debt, plus even while exploring arbitrage opportunities.

To read PersonalFN’s view, click here.

[Read: Are You Still Looking For The Popular Funds Out There? Read This!]

PS: PersonalFN’s special report 5 Undiscovered Funds may help you invest in equity funds without taking any undue risk.

These undiscovered funds, recommended in the report, have passed through a stringent scheme selection criteria set by PersonalFN.

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Author: Rounaq Neroy

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nmrshreedhar@gmail.com Dec 06, 2018 If the fund holds upto 85% in debt under " defensive circumstances" , will it still be considered as an Equity MF for taxation purpose? Not clear from the above. regds

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