Posted on Wednesday, Nov 27, 2019
To answer your query concerning the Dynamic Equity Fund, we would like to inform you that these funds dynamically manage their equity portfolios, investing more when markets are down and less when they are up. These funds have a mix of debt and equity in their portfolio. Typically, when stock markets fall they increase equity in the portfolio and when they are up they reduce it.
The equity portion of the portfolio would vary depending on the method of calculation. Each Fund House uses a different method of calculation which is either based on simple Nifty PE or an in-house proprietary model to assess valuations. Since dynamic equity funds tend to hold higher cash in prolonged rallies, they may underperform during strong market conditions. An advantage of these funds is that they are structured in such a way that they are taxed as equity funds for investors. Most funds when they lower their exposure to equities ensure that equity plus arbitrage component of the scheme is at least 65% of the corpus, which helps it to qualify for equity taxation.
In relation to Equity Savings Fund, which are a new variant in the equity Mutual Fund basket, the latest entrant in the Hybrid Fund market after the minimum holding period for non-equity funds to qualify for the long term capital gain taxation increased from 12 to 36 months. This decreased the attractiveness of the debt scheme and gave rise to the new invention termed as Equity Savings Funds.
However, as per SEBI's definition, an Equity Saving Fund is an "Open Ended Scheme Investing Inequity, Arbitrage and Debt". As per SEBI's circular, its portfolio should consist of minimum investment in equity and equity related instruments of 65% of total assets and minimum investment in debt must be 10% of the total assets.
Furthermore, please find the SEBI circular on categorization attached for your reference in ANNEXURE
A very large chunk of this 65% is expected to be in "arbitrage" or "hedged" equity. A major difference between these two categories is that in Equity Savings Fund, a minimum of 65% should be mandatorily invested in Equity instruments while in Dynamic Equity, at least 65% is invested in equity so that it comes under equity taxation and not debt.
Please visit - www.QuantumMF.com to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme's objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.