Arbitrage Funds: Understand Its Meaning and Benefits

When it comes to mutual funds, investors are often bombarded with a plethora of options, each with its own unique benefits and risks. Among these, arbitrage fund stand out for their ability to balance risk and return effectively. If you’re curious about arbitrage funds and wondering how they differ from other mutual funds, you’re in the right place. Let’s dive in!

What are Arbitrage Funds?

Arbitrage funds are a type of mutual fund that capitalize on price differences between cash and derivatives markets. In simple terms, these funds buy stocks in the cash market and simultaneously sell them in the futures market, profiting from the price gap. This strategy ensures low risk while generating steady returns.

For example, imagine a stock trading at ₹100 in the cash market and ₹105 in the futures market. An arbitrage fund would buy the stock at ₹100 and sell it at ₹105, locking in a profit of ₹5 per share, regardless of market fluctuations.

Arbitrage funds are often categorized as equity funds for tax purposes, provided they maintain a minimum of 65% equity exposure. This classification makes them an attractive option for investors seeking tax-efficient returns.

Benefits of Investing in Arbitrage Funds

1. Low Risk

Arbitrage funds leverage market inefficiencies, making them one of the least risky mutual fund options. Since the buy and sell transactions are executed simultaneously, the risk of market volatility is minimal.

2. Tax Efficiency

As equity-oriented funds, arbitrage funds benefit from favorable tax treatment. Short-term gains are taxed at 20%, while long-term gains up to ₹1.25 lakh are tax-free.

3. Liquidity

These funds are highly liquid, making them ideal for short-term investors who want to park their money safely while earning better returns than a traditional savings account.

4. Steady Returns

While the returns from arbitrage funds may not be as high as pure equity funds, they offer consistent and steady income, making them suitable for conservative investors.

5. Market Neutral

Unlike other equity funds that rely on market movements, arbitrage funds thrive in volatile markets due to increased arbitrage opportunities.

How Do Arbitrage Funds Differ From Other Mutual Funds?

List of Top 10 Arbitrage Funds India

1. Invesco India Arbitrage Fund
2. Tata Arbitrage Fund
3. Kotak Arbitrage Fund
4. Edelweiss Arbitrage Fund
5. Nippo India Arbitrage Fund
6. Axis Arbitrage Fund
7. Aditya Birla Sun Life Arbitrage Fund
8. SBI Arbitrage Opportunities Fund
9. Bandhan Arbitrage Fund
10. Mirae Asset Arbitrage Fund

Recent News: Motilal Oswal’s New Arbitrage Fund Offer

In an exciting development, Motilal Oswal Mutual Fund has launched a new arbitrage fund with a zero-expense offer for its first year. This New Fund Offer (NFO) is designed exclusively for direct plans, targeting investors who prefer a hands-on approach to their investments.

The subscription period for this NFO is from December 16 to December 19, providing a limited window to take advantage of this unique opportunity. The zero-expense feature ensures that all returns generated during the first year directly benefit investors without any deductions for fund management fees.

This innovative offer underscores Motilal Oswal’s commitment to empowering investors with cost-effective and performance-driven investment options.

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Why Should You Consider Arbitrage Funds?

Arbitrage funds are an excellent choice for:

Conservative Investors: If you’re risk-averse but still want better returns than a savings account or fixed deposit.

Short-Term Goals: Perfect for parking money with liquidity and safety in mind.

Tax Savvy Individuals: Enjoy the dual benefits of consistent returns and tax efficiency.

Motilal Oswal’s new arbitrage fund adds another layer of appeal by waiving expenses for the first year, ensuring maximum returns for investors.

Related Post: What is the Meaning of SIP in Mutual Funds?

Conclusion

Arbitrage funds strike a fine balance between risk and reward, offering a safe haven for investors amidst market volatility. With Motilal Oswal’s latest zero-expense NFO, there’s never been a better time to explore this investment avenue. Whether you’re new to mutual funds or a seasoned investor looking for diversification, arbitrage funds can be a valuable addition to your portfolio.

So, what are you waiting for? Mark your calendars for December 16 and seize this opportunity to make a smart and strategic investment!