Mutual Funds

Kotak Equity Savings: Limits volatility in returns

Dhuraivel Gunasekaran | Updated on July 12, 2020 Published on July 12, 2020

The scheme has outperformed its category over one-, three- and five-year time-frames,

Investors with a relatively low risk appetite looking for moderate exposure to equities can consider Kotak Equity Savings Fund.

Schemes under the equity savings category combine the strategies of investing in equity, debt and arbitrage opportunities.

While equity provides a kicker to the fund’s returns, debt helps protect the downside. Use of derivatives reduces the volatility in returns and adds to the returns.

As equity and derivative exposure is considered as ‘equity’ allocation, these schemes fit the criterion of an equity fund (at least 65 per cent of corpus is in hedged and unhedged equity).

Hence, they are treated as equity funds for tax purposes.

However, of the 23 funds in the category, only a few, including Kotak Equity Savings, Edelweiss Equity Savings, HDFC Equity Savings, ICICI Prudential Equity Savings and Axis Equity Saver, have managed to deliver better risk-adjusted returns over the long run. While the tactical allocation between equity and arbitrage opportunities helps ride out market volatility, the same can cap returns during market rallies.

The equity savings fund category has not been rated by BusinessLine Portfolio Star Track MF Ratings as it does not meet the requirement of having a minimum of five funds that have an NAV history of seven years.

Kotak Equity Savings is one of the consistent performers in the category.

Conservative investors with a time horizon of three or more years can consider investing in it.


The scheme has outperformed its category over one-, three- and five-year time-frames, clocking a compounded annualised return (CAGR) of 3.8 per cent, 5.7 per cent and 6.6 per cent, while the category generated 0.3 per cent, 2.9 per cent and 4.9 per cent returns, respectively. Performance, as measured by the three-year rolling return calculated from the past five years’ NAV history, shows that the fund delivered a CAGR of 7.7 per cent, while the category generated 6 per cent.

The scheme contained the equity market falls in 2015 and 2018 well and outperformed the category. It generated 6.4 per cent and 4.2 per cent during these periods while the category posted 4.9 per cent and 1.2 per cent, respectively. However, the fund has delivered on-par returns with the category in market rallies given its higher allocation to large-cap stocks. In 2017 and 2019, it generated 14 per cent and 7.7 per cent while the category delivered 14 and 7.2 per cent, respectively.


The fund follows a moderately conservative approach while managing equity and debt assets. Its equity allocation moves between 20 per cent and 50 per cent based on the market valuations.

The scheme actively manages its equity and arbitrage position, depending on the market conditions. It increases its equity holdings when arbitrage trades generate suboptimal returns. For instance, in May 2020, the fund increased its equity allocation to 46 per cent and reduced the arbitrage portion to 23 per cent.

In June, it increased the arbitrage position to 33 per cent.

Within equity, a chunk of the fund’s investments has been in large-caps.

The debt portion is managed with low to moderate duration.

The average maturity of the portfolio as of June 2020 is 0.09 years. It runs a conservative portfolio as far as credit is concerned.

Kotak Equity Savings holds only AAA and AA+ papers (Axis Bank AT1 bonds (3.6 per cent)).

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Published on July 12, 2020
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