Kotak Equity Savings Fund: Consistency pays off

Kotak Equity Savings Fund (KESF) has built a consistent track record of outperforming its category peers over the long term. Over the past seven years, its direct plan has delivered a compound annualised growth rate (CAGR) of 10.6 per cent, ahead of the category average of 9.6 per cent. Its sustained performance is also reflected in its bl.portfolio Star Track rating, where the fund has consistently featured in the 4-star or 5-star bracket since it was first rated.

Equity savings funds are suitable for investors with an investment horizon of at least three years who seek returns higher than those offered by traditional bank fixed deposits but are willing to assume a moderate level of risk.

SEBI mandates these funds to invest at least 65 per cent of their assets in equity and equity-related instruments, while maintaining net equity exposure (gross equity and equity -related holdings minus hedged exposure) between 15 per cent and 40 per cent. They must also allocate at least 10 per cent of their assets to debt instruments. By combining directional equity and arbitrage investments, these funds offer a relatively balanced risk-return profile and the benefit of equity-oriented taxation.

KESF follows a dynamic asset allocation strategy for its directional equity exposure. Directional equity refers to the fund’s direct exposure to equities, where returns are driven by the market’s direction. It uses an internally-developed model similar to the one employed by Kotak Balanced Advantage Fund. The model considers factors such as market valuations, prevailing interest rates, volatility and momentum to determine the appropriate level of directional equity exposure. The fund currently maintains around 34-35 per cent in directional equities.

Equity strategy

In constructing its equity portfolio, the fund adopts a relatively-conservative approach, with a bias towards large-cap stocks to limit potential drawdowns.

The fund house follows a Business, Management and Valuation (BMV) framework to evaluate investment opportunities. This involves assessing the scalability and sustainability of a company’s business model, the quality and governance standards of its management, and its treatment of minority shareholders.

Valuation discipline is another key consideration. The fund follows a Growth at a Reasonable Price (GARP) approach, seeking companies with healthy growth prospects without paying excessive valuations.

Although the fund has a large-cap bias, it does not completely avoid mid- and small-cap stocks. It selectively invests in these segments when attractive opportunities arise. As of October 2026, the portfolio had 44 per cent of overall assets in large-cap stocks, 17 per cent in mid-caps and 4 per cent in small-caps.

Sector allocation is guided by the fund manager’s assessment of opportunities across the market. The fund currently favours banking, financial services and insurance (BFSI), consumer discretionary, telecom and power, while maintaining relatively-lower exposure to metals, chemicals, and oil and gas.

As of October 2026, its three largest sector exposures were banks, telecom and automobiles. Over the past year, the fund increased its allocation to financial technology, construction and non-ferrous metals, while reducing exposure to metals, automobiles and IT software.

On the arbitrage front, the fund follows a stock-level arbitrage strategy rather than undertaking index arbitrage. This component complements the directional equity portfolio by generating relatively-predictable returns and helping moderate overall portfolio risk.

Debt strategy

The debt portfolio is managed conservatively, with an emphasis on capital preservation and predictable income generation rather than aggressive interest-rate or credit calls. The fund avoids taking significant credit risk and largely invests in sovereign and AAA-rated securities. Its current portfolio includes 1 per cent in government securities, 9 per cent in AAA-rated assets and 1.7 per cent in AA-rated instruments.

The fund also avoids taking aggressive duration bets, preferring to maintain a low-to-medium duration profile. Its objective is to generate returns primarily through coupon income and carry rather than frequent trading or attempts to benefit from short-term movements in bond prices. The portfolio’s Macaulay duration has remained within a relatively narrow range of 0.4-2.4 years over the past three years.

The fund has allocations of 1.4 per cent to Real Estate Investment Trusts (REITs) and 6.6 per cent to Infrastructure Investment Trusts (InvITs). These investments provide additional income diversification and access to relatively attractive yields.

As of October 2026, the debt portfolio’s yield to maturity (YTM) stood at 7.9 per cent, higher than the category average of 7.1 per cent.

Performance

On a five-year rolling-return basis, calculated over the past seven years, the fund delivered an average annualised return of 11.8 per cent, compared with 10.4 per cent for the category. During this period, its five-year rolling returns ranged between 9 per cent and 15.7 per cent.

The fund also outperformed on a three-year rolling-return basis, delivering an average CAGR of 12.3 per cent against 10.6 per cent for the category.

The regular plan carries an expense ratio of 1.46 per cent, marginally lower than the category average of 1.48 per cent. The direct plan’s expense ratio stands at 0.57 per cent, compared with 0.63 per cent for the category.

Thus, investors looking to move beyond fixed deposits without taking on the full volatility of equity funds can consider KESF. It can serve as a middle ground between debt and pure equity investments in a diversified portfolio.

Published on November 14, 2026