After you have decided to invest in mutual fund, the most important question is which fund to invest in. If you are someone who is a risk averser, yet wants to earn a good amount of return then arbitrage fund can be your ideal option. The mode of operation of arbitrage fund is to generate return from the difference in cash and futures market.
What is Arbitrage Fund?
Arbitrage fund is a type of mutual fund which works when the financial market is uncertain and unstable. This fund generates return from the price differentials in the cash and futures market. Simultaneously, the fund buy shares in the cash market and sell futures in the derivative market. At the end of the month, the differences in the cash and futures price generates the return. Since these funds buy shares in the cash market and correspondingly sell it in the futures market, so it does not have a direct exposure to equity and stocks.
How does Arbitrage Fund works?
Arbitrage Funds yield profit from low-risk buy-and-sell transactions in the cash and futures market. The risk profile of this fund is similar to that of debt fund. This fund takes advantage of the market inefficiencies and generate a good amount of return. For buying and selling in cash and futures market simultaneously, the fund manager creates a neutral market environment. Arbitrage fund also allocates the rest of the assets in high quality fixed income generating securities like- debentures, term deposits and zero coupon bonds. This allocation will help you to generate return when the arbitrage opportunities are insufficient.
Who should invest in Arbitrage Fund?
Arbitrage Funds have very low risk profile. If you are someone who is very sceptical about the risks involved with the equity market and yet want to enjoy the profit it generates, then arbitrage fund is your best option. The returns generated from these funds depends on the arbitrage opportunities between the between the cash and the futures market. Generally, the exposure to equity is more than 65%, so, arbitrage funds are considered as equity funds. The holding period of this fund is one year for long-term capital gain (LTCG). The dividend income as well as LTCG from equity are tax deductible, which increases investment in arbitrage fund.
Key points to remember about Arbitrage Fund
- The differences in prices of cash and futures market is mandatory for arbitrage opportunities.
- This fund is ideal for individuals with low risk appetite.
- During a persistent market fluctuation, you being a risk-averser can use arbitrage mutual fund to keep your excess money.
- Arbitrage fund also allocates some assets in debt securities to generate return when there is a lack in arbitrage opportunities.
- The risk profile of arbitrage fund is similar to that of a debt fund.
Top 5 Arbitrage Funds to invest in 2019
- Kotak Equity Arbitrage Fund
| Launch Date | 29th September 2005 |
| Fund Manager | Mr. Deepak Gupta |
| Benchmark | NIFTY 50 Arbitrage |
| Return Since Launch | 7.46% |
| Riskometer | Moderately Low |
| AUM | Rs. 13,738 crores (as on 31st Jan 2019) |
| Fund | 3 year return | 5 year return | 10 year return |
| Kotak Equity Arbitrage Fund | 6.24 | 6.91 | 7.28 |
*as on feb 11, 2019
- ICICI Prudential Equity Arbitrage Fund
| Launch Date | 30th December 2006 |
| Fund Manager | Mr. Dharmesh Kakkad & Mr. Kayzad Eghlim (for equity) Mr. Manish Banthia (for debt) |
| Benchmark | NIFTY 50 Arbitrage TRI |
| Return Since Launch | 7.56% |
| Riskometer | Moderate |
| AUM | Rs. 8,406 crores (as on 31st Jan 2019) |
| Fund | 3 year return | 5 year return | 10 year return |
| ICICI Prudential Equity Arbitrage Fund | 6.16 | 6.79 | 7.27 |
*as on feb 11, 2019
- SBI Arbitrage Opportunities Fund
| Launch Date | 3rd November 2006 |
| Fund Manager | Mr. Neeraj Kumar |
| Benchmark | NIFTY 50 Arbitrage Index |
| Return Since Launch | 7.33% |
| Riskometer | Moderately Low |
| AUM | Rs. 2860.34 crores (as on 31st Jan 2019) |
| Fund | 3 year return | 5 year return | 10 year return |
| SBI Arbitrage Opportunities Fund | 6.01 | 6.65 | 7.02 |
*as on feb 11, 2019
- UTI Arbitrage Fund
| Launch Date | 22nd June 2006 |
| Fund Manager | Mr. Amit Sharma & Mr. Rajeev Gupta |
| Benchmark | CRISIL Arbitrage Index |
| Return Since Launch | 7.40% |
| Riskometer | Moderately Low |
| AUM | Rs. 1,334 crores (as on 31st Jan 2019) |
| Fund | 3 year return | 5 year return | 10 year return |
| UTI Arbitrage Fund | 6.13 | 6.72 | 6.96 |
*as on feb 11, 2019
- Invesco India Arbitrage Fund
| Launch Date | 30th April 2007 |
| Fund Manager | Mr. Pranav Gokhale |
| Benchmark | NIFTY 50 Arbitrage |
| Return Since Launch | 7.06% |
| Riskometer | Moderately Low |
| AUM | Rs. 293 crores (as on 31st Jan 2019) |
| Fund | 3 year return | 5 year return | 10 year return |
| Invesco India Arbitrage Fund | 5.97 | < |
