By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Investment SimplifiedInvestment Simplified
  • Tax
    • Popular Searches
    • What is Form 16?
    • Trademark Registration Fees
    • TDS Full Form
    • Ad Valorem Tax
    • How to Save Tax?
  • Aadhaar
    • Popular Searches
    • How to Book Aadhaar Card Appointment?
    • E-Aadhaar And It’s Benefits
    • What is a Masked Aadhaar?
    • ESign Aadhaar: A Complete Guide
    • Aadhaar Card Address Change
  • EPF
    • Popular Searches
    • EPFO Member Portal – Login, Registration
    • EPFO Establishment Search
    • Guide to Your EPFO Member Login
    • EPF Interest Rate
    • What Is UAN Activation?
  • PAN Card
    • Popular Searches
    • What is a PAN Card
    • NSDL PAN Card
    • UTI PAN
    • e-PAN Card
    • PAN Card Apply
  • Banking
    • Banks
      • Popular Searches
      • State Bank of India (SBI)
      • Bank of Baroda (BOB)
      • Canara Bank
      • Indian Bank
      • Bank of India (BOI)
    • Bank Timings
      • Popular Searches
      • Bank of Baroda Timings
      • IDBI Bank Timings
      • Union Bank Timings
      • Karnataka Bank Timings
      • Central Bank of India Timings
      • Canara Bank Timings
    • Mini Statement
      • Popular Searches
      • Axis Bank Mini Statement
      • HDFC Mini Statement
      • Bank of Baroda Mini Statement
      • Union Bank of India Mini Statement
      • SBI Mini Statement
    • Balance Enquiry
      • Popular Searches
      • Canara Bank Balance Enquiry by SMS, Missed Call, Netbanking
      • SBI Balance Enquiry
      • Union Bank of India Balance Enquiry Number
      • BOB Balance Enquiry
      • PNB Balance Check Number – Enquiry by SMS, Missed Call, Netbanking
    • NEFT
      • Popular Searches
      • HDFC NEFT
      • SBI NEFT
      • Axis Bank NEFT
      • ICICI Bank NEFT
      • Canara Bank NEFT
    • Net Banking
      • Popular Searches
      • HDFC Bank Net Banking
      • SBI Net Banking
      • ICICI Net Banking
      • Axis Bank Net Banking
      • IOB Net Banking
    • Customer Care
      • Popular Searches
      • Central Bank of India Customer Care Number
      • Bank of Baroda Customer Care – Missed Call and Toll Free Number
      • Bank of Maharashtra Customer Care
      • Punjab National Bank Customer Care Number – PNB Grievance Redressal
      • IOB Customer Care Number
    • UPI
      • Popular Searches
      • BHIM
      • Google Pay
      • BHIM SBI Pay
      • Union Bank UPI
      • HDFC UPI
    • Debit Card
      • Popular Searches
      • SBI Debit Card
      • HDFC Debit Card
      • PNB Debit Card
      • Axis Bank Debit Card
      • Kotak Debit Card
    • RTGS
      • Popular Searches
      • RTGS Process
      • SBI RTGS
      • ICICI Bank RTGS Form
      • Axis Bank RTGS Form
      • HDFC RTGS Form
    • IMPS
      • Popular Searches
      • IMPS Limit
      • IMPS vs. NEFT
      • IMPS vs. NEFT vs. RTGS
      • MMID
    • Cheque
      • Popular Searches
      • Types of Cheques
      • Blank Cheque
      • Cancelled Cheque – How to Write a Cancelled Cheque?
      • Account Payee Cheque
      • Banker’s Cheque
    • Bank Holidays
      • Popular Searches
      • Bank Holidays in June 2023
      • Bank Holidays in July 2023
      • Bank Holidays in August 2023
      • Bank Holidays in September 2023
      • Bank Holidays in October 2023
    • Mobile Banking
      • Popular Searches
      • SBI Mobile Banking
      • HDFC Mobile Banking
      • Bank of Baroda Mobile Banking
      • Indian Bank Mobile Banking
      • Canara Bank Mobile Banking
    • Passbook
      • Popular Searches
      • SBI Passbook
      • Union Bank Passbook
      • BOB Passbook
      • HDFC Passbook
      • Axis Bank Passbook
    • Demand Draft
      • Popular Searches
      • Demand Draft Validity
      • Demand Draft Form
  • Savings Account
    • Popular Searches
    • What is a savings account
    • SBI Savings Account
    • Bank of Baroda Saving Account
    • Bank of Maharashtra Saving Account
    • Central Bank of India Saving Account
  • Insurance
    • General Insurance
    • Car Insurance
    • Travel Insurance
    • Pension & Retirement
  • About Us
  • Contact
Reading: What is Arbitrage Fund, Benefits & How to Invest?
Share
Investment SimplifiedInvestment Simplified
Search
  • Tax
    • Popular Searches
    • What is Form 16?
    • Trademark Registration Fees
    • TDS Full Form
    • Ad Valorem Tax
    • How to Save Tax?
  • Aadhaar
    • Popular Searches
    • How to Book Aadhaar Card Appointment?
    • E-Aadhaar And It’s Benefits
    • What is a Masked Aadhaar?
    • ESign Aadhaar: A Complete Guide
    • Aadhaar Card Address Change
  • EPF
    • Popular Searches
    • EPFO Member Portal – Login, Registration
    • EPFO Establishment Search
    • Guide to Your EPFO Member Login
    • EPF Interest Rate
    • What Is UAN Activation?
  • PAN Card
    • Popular Searches
    • What is a PAN Card
    • NSDL PAN Card
    • UTI PAN
    • e-PAN Card
    • PAN Card Apply
  • Banking
    • Banks
      • Popular Searches
      • State Bank of India (SBI)
      • Bank of Baroda (BOB)
      • Canara Bank
      • Indian Bank
      • Bank of India (BOI)
    • Bank Timings
      • Popular Searches
      • Bank of Baroda Timings
      • IDBI Bank Timings
      • Union Bank Timings
      • Karnataka Bank Timings
      • Central Bank of India Timings
      • Canara Bank Timings
    • Mini Statement
      • Popular Searches
      • Axis Bank Mini Statement
      • HDFC Mini Statement
      • Bank of Baroda Mini Statement
      • Union Bank of India Mini Statement
      • SBI Mini Statement
    • Balance Enquiry
      • Popular Searches
      • Canara Bank Balance Enquiry by SMS, Missed Call, Netbanking
      • SBI Balance Enquiry
      • Union Bank of India Balance Enquiry Number
      • BOB Balance Enquiry
      • PNB Balance Check Number – Enquiry by SMS, Missed Call, Netbanking
    • NEFT
      • Popular Searches
      • HDFC NEFT
      • SBI NEFT
      • Axis Bank NEFT
      • ICICI Bank NEFT
      • Canara Bank NEFT
    • Net Banking
      • Popular Searches
      • HDFC Bank Net Banking
      • SBI Net Banking
      • ICICI Net Banking
      • Axis Bank Net Banking
      • IOB Net Banking
    • Customer Care
      • Popular Searches
      • Central Bank of India Customer Care Number
      • Bank of Baroda Customer Care – Missed Call and Toll Free Number
      • Bank of Maharashtra Customer Care
      • Punjab National Bank Customer Care Number – PNB Grievance Redressal
      • IOB Customer Care Number
    • UPI
      • Popular Searches
      • BHIM
      • Google Pay
      • BHIM SBI Pay
      • Union Bank UPI
      • HDFC UPI
    • Debit Card
      • Popular Searches
      • SBI Debit Card
      • HDFC Debit Card
      • PNB Debit Card
      • Axis Bank Debit Card
      • Kotak Debit Card
    • RTGS
      • Popular Searches
      • RTGS Process
      • SBI RTGS
      • ICICI Bank RTGS Form
      • Axis Bank RTGS Form
      • HDFC RTGS Form
    • IMPS
      • Popular Searches
      • IMPS Limit
      • IMPS vs. NEFT
      • IMPS vs. NEFT vs. RTGS
      • MMID
    • Cheque
      • Popular Searches
      • Types of Cheques
      • Blank Cheque
      • Cancelled Cheque – How to Write a Cancelled Cheque?
      • Account Payee Cheque
      • Banker’s Cheque
    • Bank Holidays
      • Popular Searches
      • Bank Holidays in June 2023
      • Bank Holidays in July 2023
      • Bank Holidays in August 2023
      • Bank Holidays in September 2023
      • Bank Holidays in October 2023
    • Mobile Banking
      • Popular Searches
      • SBI Mobile Banking
      • HDFC Mobile Banking
      • Bank of Baroda Mobile Banking
      • Indian Bank Mobile Banking
      • Canara Bank Mobile Banking
    • Passbook
      • Popular Searches
      • SBI Passbook
      • Union Bank Passbook
      • BOB Passbook
      • HDFC Passbook
      • Axis Bank Passbook
    • Demand Draft
      • Popular Searches
      • Demand Draft Validity
      • Demand Draft Form
  • Savings Account
    • Popular Searches
    • What is a savings account
    • SBI Savings Account
    • Bank of Baroda Saving Account
    • Bank of Maharashtra Saving Account
    • Central Bank of India Saving Account
  • Insurance
    • General Insurance
    • Car Insurance
    • Travel Insurance
    • Pension & Retirement
  • About Us
  • Contact
Investment Simplified > Mutual Funds > What is Arbitrage Fund, Benefits & How to Invest?
Mutual Funds

What is Arbitrage Fund, Benefits & How to Invest?

Ashish Kumar
Last updated: 2022/12/06 at 10:10 PM
Ashish Kumar Published June 14, 2022 11 Min Read
Share
SHARE
What is Arbitrage Fund?How do Arbitrage Mutual Funds Work?Who Should Invest in Arbitrage Funds?What to know before investing in Arbitrage funds?How to Invest in Arbitrage Funds?How are Arbitrage Funds Taxed in India?Top 7 Arbitrage Funds in IndiaConclusionFAQs

As capital markets are experiencing tremendous uncertainty and volatility, investors seek arbitrage opportunities to create wealth from their savings. However, with time and the generation of regulatory provisions, arbitrage opportunities have become rare and are time-consuming to identify and execute. Whether you’re starting new or looking to grow your existing investment portfolio, investing in arbitrage mutual funds can be one of the best ways to go. This blog looks at different aspects of arbitrage funds and why they are a good addition to your investment portfolio.

What is Arbitrage Fund?

Arbitrage fund is the most risk-averse and sought-after mutual fund type in India. Over the years, best arbitrage funds have delivered consistent returns even during volatile economic conditions. Arbitrage fund meaning refers to an investment vehicle seeking to take advantage of price discrepancies in the marketplace.

An arbitrage fund might purchase shares of a company about to be acquired at a lower price than the acquisition price and then sell those shares after the acquisition is complete for a profit. For example, if a stock is trading at INR 50 per share on one exchange and INR 51 per share on another exchange, the arbitrage fund will buy the stock on the first exchange and sell it on the second exchange, pocketing the INR 1 per share difference.

Best arbitrage funds can be used to profit from various types of transactions, including mergers and acquisitions, spin-offs, and even initial public offerings (IPOs). In each case, the arbitrage fund seeks to purchase assets at a lower price and then sell them at a higher price, thus generating a return for investors.

Overall, arbitrage funds can be a great way to earn a return in the market, but it is important to understand the risks involved before investing.

What is Arbitrage Fund

How do Arbitrage Mutual Funds Work?

Fixed-income arbitrage is a type of trading that involves taking advantage of price discrepancies between different markets. For example, a trader might buy a bond in one market and then sell it in another market where the price is higher. The goal is to profit from the price difference or the “arbitrage.”

There are a few things to keep in mind when it comes to fixed income arbitrage:

  1. It’s important to have a good understanding of both the bond market and the stock market.
  2. You need to be able to quickly identify opportunities and act on them.
  3. You need to have a firm understanding of risk management.
  4. You need to be comfortable with holding positions for long periods of time.
  5. You need to have a good understanding of the tax implications of fixed-income arbitrage.

Key Takeaways

  • An arbitrage fund is a great way to boost returns and minimise risk. However, it is important to remember that these funds are subject to market conditions and can lose money in a down market.
  • Arbitrage fund seeks to profit from price discrepancies in the market.
  • Arbitrage funds can be a good way to diversify a portfolio, so investors should consider allocating a small portion of their assets to these types of funds.
  • Best arbitrage funds can be used to hedge against market volatility.
  • Arbitrage funds can be used to profit from both rising and falling markets.
  • Arbitrage funds may be subject to market, liquidity, and other risks.

Who Should Invest in Arbitrage Funds?

Arbitrage mutual funds refers to mutual funds that invest in a mix of equity and debt instruments to exploit the price differentials between the two asset classes. Arbitrage fund investment is suitable for investors looking for a relatively low-risk investment option with the potential for modest returns. These funds typically have lower volatility than equity-only funds, making them good for risk-averse investors.

Arbitrage Fund

What to know before investing in Arbitrage funds?

Arbitrage mutual funds leverage the price disparity between securities across a variety of markets to generate healthy returns. The stock, cash, and futures market are the primary transaction points for arbitrage funds. The difference in the pricing of securities in the futures and stock market is how arbitrage funds earn the returns.

Being one of the hottest investment trends, one should be aware of the risks and rewards that concern them together with keeping different factors that concern in mind:

  1. Monetary objectives

There are a few key things to consider when investing in an arbitrage fund, and one of the most important is your monetary objectives. What are you looking to gain from investing in these types of funds? Are you simply hoping to grow your money over time, or are you looking for more immediate returns?

Of course, there is no guarantee that you will make any money from investing in arbitrage funds, but understanding your own financial goals can help you make better decisions about allocating your resources. If you are risk-averse, you may want to invest less in arbitrage funds than in other types of investments.

  1. Involved extra costs

Arbitrage funds come with extra costs that must be considered before investing. These include the management fee, performance fee, and other associated costs. The management fee is a charge assessed by the fund manager for running the arbitrage fund. The performance fee is a charge assessed by the fund manager based on the fund’s performance. Other associated costs include things like transaction costs and taxes.

Arbitrage Fund
  1. Past performance is a matrix

When looking to invest in arbitrage funds, you should keep a few things in mind. First and foremost, you need to ensure that the fund you are considering has a working system. This means that the fund should have a clear and concise strategy for how it plans to generate profits through arbitrage. Without a well-defined system, it will be very difficult for the fund to generate consistent profits.

Secondly, you need to look closely at the fund’s track record. How well has it performed in the past? Are there any red flags that you should be aware of? If the fund has a history of poor performance, it is probably not worth investing in.

Did you Know?

More than 65% exposure of arbitrage funds is towards equities.

Also Read: What are ELSS Funds?

How to Invest in Arbitrage Funds?

In order to produce arbitrage returns, arbitrage funds use hybrid mutual fund strategies that take advantage of pricing discrepancies between the same underlying assets in several capital market segments. Also available for investment are debt and money market products.

There are a plethora of technology companies that allow investors to leverage the digital medium and invest in the top arbitrage funds. The process is smooth and paperless and can be done online. One has to simply log in or register on the online portal, opt for an appropriate plan, input all the required details, and start investing.

Word to Remember

IPOs can be a risky investment, but they can be a lucrative way to generate returns for arbitrage funds. For investors looking to get in on the ground floor of a promising company, an IPO can be a great opportunity. But it’s important to remember that there is always a risk of loss when investing in any company, no matter how big or small.

How are Arbitrage Funds Taxed in India?

During taxation, arbitrage funds are treated as equity funds. People holding these funds for less than a year pay 15% capital gains tax, whereas, if they sell arbitrage funds after a year, they pay only 10% long term capital gains tax. If the investors keep their funds for longer than a year then this the returns on investment will be considered as long term capital gains (LTCG). Arbitrage fund refers to a mutual fund seeking to profit from price differences in different markets. The benefits of investing in arbitrage funds include taxing similarly to equity funds – you can potentially enjoy the same capital gains tax benefits with an equity mutual fund. Additionally, arbitrage funds can provide a higher return potential than traditional mutual funds, making them attractive for investors seeking to maximise their returns.

Top 7 Arbitrage Funds in India

Here is the list of the Top 7 arbitrage funds in India 2022-2023:

Fund Name Net Assest Value (in rupees)Net Assets
Kotak Equity Arbitrage Fund30.594125,789 Cr
Edelweiss Arbitrage Fund15.90066,993 Cr
Nippon India Arbitrage Fund321.877710,809 Cr
ICICI Prudential Equity Arbitrage Fund28.139313,400 Cr
Invesco India Arbitrage Fund26.07431,095 Cr
Axis Arbitrage Fund15.4075,303 Cr
SBI Arbitrage Opportunities Fund27.62718,372 Cr
Arbitrage Fund

Conclusion

If you’re looking to diversify your investment portfolio and aren’t sure how to go about it, you need to invest in arbitrage mutual funds. These funds allow you to diversify your portfolio and reap the benefits of the arbitrage strategy. We hope this blog has answered your questions and can help you make more money for your portfolio.

Also Read: What are Liquid Funds?

FAQs

1. Can the best arbitrage funds face losses too?

Though arbitrage funds are generally considered a less risky investment tool, they too can be exposed to some amount of risk. Hence, it is also an unpredictable market with reduced loss chances.

2. What are the short-term returns of arbitrage funds?

Short-term capital gains refer to the return extracted when you sell your arbitrage fund within one year of purchase. Also, the returns are subjected to a tax deduction of 15% alongside cess in this case.

3. How to choose the best arbitrage funds for investment?

When it comes to choosing an arbitrage fund for investment, there are a few key factors to consider:
First, you’ll want to look at the fund’s performance over time.
Next, you’ll want to look at the fees charged by the fund.
Finally, you’ll want to consider the fund’s investment strategy.

4. What makes liquid funds better than arbitrage funds?

Liquid funds can be cashed within 4 hours. At the same time, arbitrage funds require 3 to 5 days.

5. Can investments in arbitrage funds have negative returns?

Yes, due to the spread differential, an arbitrage fund can undergo negative returns for a short span.

6. Is arbitrage fund good?

Arbitrage funds are a lucrative investment as it helps investors to profit from volatility in the market without taking a lot of risk.

7. Is arbitrage fund tax free?

The taxes on arbitrage funds are similar to equity funds. Investors holding arbitrage funds for less than one year will pay 15% capital gains tax. Investors selling the funds after a year will pay a 10% tax on long-term capital gains.

8. Is arbitrage fund better than FD?

Arbitrage funds is a productive option for investors looking forward to make the most in volatile markets. Fixed deposits on the other hand provide investors with higher rates of interest till the maturity date.

9. Is arbitrage legal in India?

Yes, arbitrage trading is a legal practice in India. It is encouraged in a variety of markets as it showcases price discrepancies.

10. What are the downsides of Investing in Arbitrage Funds?

Some of the downsides of investing in arbitrage funds are:
– Arbitrage funds are not the most reliable funds out there and do not present profitability in stable markets.
– The expense ratios of arbitrage funds are very high.

11. Is Arbitrage better than Fixed Deposits?

Fixed deposits are riskier in comparison to fixed deposits. With arbitrage funds, Returns are good but they are not always fixed and with fixed deposits these returns are fixed.

Also read about Equity Mutual Fund on Investment Simplified.

Share This Article
Facebook Twitter Whatsapp Whatsapp Email Copy Link Print
By Ashish Kumar
Ashish Kumar is a SEO content writing enthusiast and an avid blogger who closely follows the latest financial trends. He writes about various topics related to Insurance, Aadhaar, PAN, Banking and other financial products.
Previous Article KVP Interest Rate KVP Interest Rate
Next Article family pension Family Pension Rules After Death of Pensioner to Ease Your Worries
Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Popular Searches
  • What Is Mutual Fund
  • What Are Contra Funds
  • What Are Money Market Mutual Fund
  • How To Invest In SIP
  • Types Of Mutual Funds
  • SIP Vs Mutual Funds
  • ELSS Tax Saving
  • Flexi Cap Fund
  • What Is SIP
  • What Are Tax Saver Mutual Funds
  • Best Debt Mutual Fund
  • Mid Cap Mutual Funds
  • Best Mutual Funds
  • What Is A Liquid Fund
  • Large Cap Fund
  • Best Sip To Invest
  • Equity Mutual Fund Types
  • What Is Equity Mutual Fund
  • What Is Tax Saver Sip
  • What Is ELSS Fund

Social Media

Social Media
Facebook
YouTube
Instagram
Twitter
Linkedin

Recent Post

Top Financial Influencers
Top 15 Financial Influencers in India
Investment
Cheque
What is a Cheque – Types, Components, Uses, Advantages
Banking
IDFC Debit Card
IDFC Debit Card
Banking
Federal Bank Debit Card
Federal Bank Debit Card
Banking

You Might also Like

Top Financial Influencers

Top 15 Financial Influencers in India

Financial influencers in India have helped to create a platform for financial…

Read More
Best Mutual fund

Planning to Invest in Mutual Funds? Here are the Best Mutual Funds to Invest in 2022

Many new mutual fund investors search the internet for the Best Mutual…

Read More
Phonepe

Phonepe

PhonePe is a digital payment app that allows users to make payments…

Read More
HDFC Bank IMPS

HDFC Bank IMPS

HDFC Bank is one of the largest banks in India offering number…

Read More
IS logo 250px

We are here to make your investment journey simple by delivering content on financial topics in plain English.

Categories

  • Tax
  • Cryptocurrency
  • Aadhaar
  • Mutual Funds
  • Banking
  • General Insurance
  • Pension & Retirement
  • Car Insurance
  • Travel Insurance

Quick Link

  • About Us
  • Contact
  • Terms & Conditions
  • Privacy Policy
Social Media
Facebook
YouTube
Instagram
Twitter
Linkedin

We are here to make your investment journey simple by delivering content on financial topics in plain English.

Categories

  • Tax
  • Cryptocurrency
  • Aadhar
  • Mutual Funds
  • General Insurance
  • Pension & Retirement
  • Car Insurance
  • Travel Insurance

Quick Link

  • About Us
  • Contact
  • Terms & Conditions
  • Privacy Policy

Social Media

Copyright © 2023 Investment Simplified. All rights reserved.

Welcome Back!

Sign in to your account

Lost your password?