What are Arbitrage Funds?
Arbitrage Funds exploit price differences between cash and derivatives markets to generate returns. They buy securities in one market and simultaneously sell in another at a higher price, locking in risk-free profits. These funds are ideal for conservative investors seeking low-risk, stable returns with minimal exposure to market volatility.
Features of Arbitrage Funds
Hedge against market swings
Low-risk investment
Steady returns
Benefits of Investing in Arbitrage Funds
Risk-adjusted returns
Market neutrality by focusing on price inefficiencies
Short-term gains are taxed as equity, offering better tax efficiency
Who Should invest inArbitrage Funds
Conservative InvestorsIdeal for those seeking low-risk, stable returns. With a primary objective of minimising market volatility, Arbitrage Equity Funds provide a sense of security and consistency, aligning seamlessly with the risk-averse nature of conservative investors
Moderate InvestorsThese funds combine both equity and debt arbitrage strategies, creating a diversified portfolio. By aiming for steady returns while maintaining a moderate level of risk, mixed arbitrage funds offer the potential for higher returns compared to conservative options while still emphasising the preservation of capital.
Aggressive InvestorsThese funds primarily concentrate on arbitrage opportunities within the equity markets, including stocks and equity derivatives. Their goal is to profit from price disparities between these assets.
Top Performing mutual funds
| Scheme Name | 5 Y | Value Research | ||||
|---|---|---|---|---|---|---|
 Tata Arbitrage Fund - Direct (G) | 6.30% | Invest Now | ||||
 Invesco India Arbitrage Fund - Direct (G) | 6.29% | Invest Now | ||||
Invesco India Arbitrage Fund - Dir (Annual-B) | 6.29% | Invest Now | ||||
Invesco India Arbitrage Fund - Direct (IDCW) | 6.27% | Invest Now | ||||
FAQs
What are Arbitrage Funds?
Arbitrage Funds exploit price differences between the cash and derivatives markets to generate low-risk returns by simultaneously buying and selling securities.
How do Arbitrage Funds generate returns?
These funds generate returns by leveraging price discrepancies between different markets. They buy securities in one market and sell them in another at a higher price, locking in risk-free profits.
Are Arbitrage Funds suitable for risk-averse investors?
Yes, Arbitrage Funds are suitable for risk-averse investors as they aim to provide steady returns with minimal risk, utilising a market-neutral strategy.
How are Arbitrage Funds taxed?
Short-term gains in Arbitrage Funds are taxed as equity, which is generally more tax-efficient compared to traditional debt funds, offering better post-tax returns.
Can Arbitrage Funds be part of a diversified portfolio?
Yes, these funds can be an excellent addition to a diversified portfolio, offering stability and low-risk returns, complementing higher-risk investments