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Overview
Arbitrage Mutual Funds seek to earn from temporary pricing differences between related cash and derivatives market positions.
Instead of relying mainly on stocks rising over time, the strategy generally uses offsetting positions designed to capture available spreads.
Arbitrage Funds can therefore behave differently from conventional diversified Equity Funds even when their gross equity exposure is high.
Explained
An Arbitrage Fund typically buys a security in one market and takes an offsetting position in another when a price difference exists.
A common example involves the cash and futures markets.
Suppose a share trades at ₹500 in the cash market while the corresponding futures contract trades at ₹504.
The fund could buy the share and sell the futures contract.
As the prices converge, the fund attempts to capture the difference after transaction costs and other expenses.
Explained
The manager continuously searches for eligible arbitrage opportunities.
The portfolio can contain:
As a futures contract approaches expiry, its price generally converges toward the spot price of the underlying asset.
Arbitrage strategies attempt to use this relationship.
Potential returns depend on:
Suitability
Arbitrage Funds may suit investors who:
Advantages
Offsetting cash and futures positions can reduce the impact of broad equity-market movements.
The fund attempts to capture available differences between related market prices.
Investors do not need to manage futures contracts and cash positions themselves.
A fund can hold numerous arbitrage positions along with permitted fixed-income instruments.
Qualifying Arbitrage Funds can receive equity-oriented capital-gains treatment under applicable tax provisions.
Before you invest
When arbitrage spreads decline, expected returns can also decline.
Real-world trades involve bid-ask spreads, transaction costs, liquidity, and execution timing.
Futures and other derivatives remain important components of the strategy.
The non-arbitrage portfolio can carry credit and interest-rate risk.
Check whether early redemption attracts an exit load.
Arbitrage Funds should not be evaluated using the same return expectations as long-term Equity Funds.
Taxation
Where an Arbitrage Fund meets the applicable requirements to qualify as an equity-oriented fund, equity capital-gains provisions generally apply.
Eligible units held for more than 12 months are generally treated as long-term holdings for these purposes.
Section 112A can apply to eligible long-term capital gains above the prevailing annual exemption threshold.
Qualifying units held for 12 months or less generally fall under Section 111A.
Investors should verify prevailing rates and the current classification of the specific scheme.
Step by step
Good to know
They primarily attempt to capture pricing differences between related cash and derivative positions.
Their hedged positions can reduce direct market-direction exposure, but positive returns are not guaranteed during falling markets.
Arbitrage spreads, liquidity, short-term interest rates, expenses, and market participation change over time.
No.
Yes. Market, execution, liquidity, debt, derivative, and other risks can affect NAV.
Qualifying schemes can receive equity-oriented capital-gains treatment when applicable requirements are satisfied.
Recap
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FUND
T
Tata Arbitrage Fund Direct Monthly Reinvestment of Income Distribution cum Capital WithdrawalAlternative Strategies Arbitrage₹15.68
0.2%
6.72%
7.5%
6.84%
Kotak Arbitrage Fund Direct GrowthAlternative Strategies Arbitrage₹43.21
0.22%6.67%
7.48%
6.9%
Invesco India Arbitrage Fund Direct Plan Growth OptionAlternative Strategies Arbitrage₹37.27
0.22%6.76%
7.47%
7.01%
Aditya Birla Sun Life Arbitrage Fund Direct Plan GrowthAlternative Strategies Arbitrage₹30.9
0.21%6.69%
7.44%
6.76%
Edelweiss Arbitrage Fund Direct Reinvestment of Income Dis cum Cptl Wdrl OptAlternative Strategies Arbitrage₹16.04
0.19%6.64%
7.43%
6.86%
Mirae Asset Arbitrage Fund Direct GrowthAlternative Strategies Arbitrage₹14.57
0.21%6.66%
7.39%
6.71%
Axis Arbitrage Fund - Direct plan - Monthly IDCW payoutAlternative Strategies Arbitrage₹12.4
0.21%6.63%
7.35%
6.87%
UTI Arbitrage Fund Direct Growth OptionAlternative Strategies Arbitrage₹40.2
0.2%6.56%
7.34%
6.66%
Bandhan Arbitrage Fund - Direct Plan - GrowthAlternative Strategies Arbitrage₹37.8
0.21%6.45%
7.33%
6.71%
I
ICICI Prudential Arbitrage Fund Direct Plan GrowthAlternative Strategies Arbitrage₹39.65
0.21%6.57%
7.32%
6.7%
T
Tata Arbitrage Fund Direct GrowthAlternative Strategies Arbitrage₹16.32
0.2%6.71%
7.49%
6.8%
Kotak Arbitrage Fund Direct Monthly Payout of Inc Dis cum Cap WdrlAlternative Strategies Arbitrage₹11.24
0.22%6.64%
7.47%
6.89%
Invesco India Arbitrage Fund Direct Plan Payout of Income Dist cum Capital WtdrlAlternative Strategies Arbitrage₹20.24
0.22%6.76%
7.47%
7.01%
Nippon India Arbitrage Fund Direct Plan Reinvestment of Income Distribution cum cptl wdrlAlternative Strategies Arbitrage₹19.05
0.22%6.68%
7.32%
6.75%
Edelweiss Arbitrage Fund Direct Payout of Income Dis cum Cptl Wdrl OptAlternative Strategies Arbitrage₹16.04
0.19%6.64%
7.43%
6.86%
Mirae Asset Arbitrage Fund Direct Payout of Income Dis cum Cptl WrdlAlternative Strategies Arbitrage₹14.55
0.21%6.66%
7.38%
6.68%
HDFC Arbitrage Fund - Direct Plan - Growth OptionAlternative Strategies Arbitrage₹21.74
0.25%6.54%
7.3%
6.63%
SBI Arbitrage Fund Direct Reinvestment Inc Dist cum Cap WdrlAlternative Strategies Arbitrage₹20.92
0.25%6.46%
7.27%
6.81%
Bandhan Arbitrage Fund-Direct Plan- Annual Payout of Income Distribution cum Capital Wdrl OptAlternative Strategies Arbitrage₹12.7
0.21%6.45%
7.33%
6.69%
ITI Arbitrage Fund Direct GrowthAlternative Strategies Arbitrage₹14.56
0.17%6.36%
7.27%
6.14%
Showing 1–20 of 107
