The New Fund Offer (NFO) of Franklin India Equity Savings Fund has been launched on Friday, August 3. The fund is aimed at investors who wish to benefit from the tax advantages of equity funds without taking on the risk of equity investment. The NFO will be open from 3rd August to 17th August 2018.
Franklin Equity Savings Fund will maintain an actual equity allocation of 15 – 65%. It will invest 10 – 35% of its corpus in debt and 0 – 10% in units of REITs and InVITs. The fund will be benchmarked to the Nifty Equity Savings Index. Lakshmikanth Reddy will manage the equity portion of the scheme. He manages several other Franklin Templeton schemes, including Franklin India Taxshield. The debt portion will be managed by Sachin Padwal-Desai and Umesh Sharma.
The fund will offer both growth and dividend options. The minimum investment amount is Rs 5,000.
An Equity Savings Fund uses derivatives to reduce its actual equity exposure while maintaining the gross equity allocation above 65%. This allows the fund to be classified as an equity fund for tax purposes. An equity fund attracts a 15% short term capital gains tax if sold within one year of purchase and a 10% long term capital gains tax if sold after one year of purchase. A non-equity fund on the other hand is taxed at slab rate (which can be 30%) if sold within three years of purchase and at 20% (with indexation) thereafter.
In terms of returns, the equity savings category has delivered a middle-of-the-road performance. Returns over the past five years ranged from 11.2% (HDFC Equity Savings Fund) to 6.9% (IDFC Savings Fund). The category will outperform if you expect equities to be range-bound over the next few years, rather than move steadily upward.