Blending debt and equity in a portfolio to reduce overall risk is what a balanced fund does. What can take risk down a few more notches is hedging a portion of the equity via arbitrage opportunities.

That’s what Axis Equity Saver fund, a new open-ended fund on offer, is aiming at.


The fund will typically invest between 65 and 80 per cent of its portfolio in equities. While investments will be made across market capitalisations, large-cap stocks will account for at least half the equity portion. Then, of the total equity exposure, 20 to 60 per cent will be hedged through stock and index derivatives, trying to make the most of arbitrage opportunities.

Such opportunities arise when a particular security is available at different prices in different markets. The most common mispricing opportunities are in the futures market. For instance, if the price of a stock on the futures market is higher than the spot, the fund can buy the stock in the spot market and sell it in the futures market. In essence, the fund simultaneously takes opposite positions on a set of securities in two different markets.

The arbitrage portion of the portfolio offers returns similar to debt. The fund can also invest in index futures depending on market conditions.

Risk and return

What these strategies do is to neutralise market risk; 20-35 per cent of the fund will be invested in debt, and here the fund will stick to higher credit quality and follow a duration strategy. The fund will rebalance the portfolio every month or so. While the risk is lower in these strategies, returns will also be capped.

This makes the fund suitable for those who want reasonably higher returns but don’t want to deal with the volatility stock market investing brings with it. The fund’s benchmark is the CRISIL MIP Blended index.

Axis Equity Saver is not the first of its kind; ICICI Pru Balanced Advantage, for example, follows a similar strategy of mixing arbitrage with equity and debt.

The Axis fund will be managed by Jinesh Gopani, who also manages top performer Axis Long Term Equity and Axis Income Saver, and R Sivakumar who co-manages the four-year-old Axis Dynamic Bond fund, a middle-of-the-road performer.

Since over 65 per cent of Axis Equity Saver’s portfolio will be in equities, capital gains on holding period of over one year is tax-exempt. But in extreme circumstances, the fund can pull equity portion down to as low as 20 per cent. The NFO period is on until August 10. Subscription reopens by August 20.