Arbitrage funds use the price difference in the cash and derivatives segment to generate returns. They aren’t for the NSE and BSE cash segment arbitrage.
Arbitrage funds are a particular type of mutual fund that takes advantage of the difference in price in the cash and futures or derivatives segment price to generate returns.
It is different from the NSE and BSE arbitrage one may assume from the cash segment buy and sell for a differential price.
Best Arbitrage Funds to Invest in India
Here is the performance of the top arbitrage funds as per the ValueResearchOnline.
Considering those funds that have to remain as best performing in the past 1, 3, and 5 years range, we have the following table.
|Fund||1Yr Ret||3Yr Ret||5Yr Ret|
|Nippon India Arbitrage Fund||6.24||6.28||6.73|
|Kotak Equity Arbitrage Fund||6.12||6.16||6.57|
|Edelweiss Arbitrage Fund||6.21||6.14||6.64|
|UTI Arbitrage Fund||6.25||6.11||6.50|
|IDFC Arbitrage Fund||6.24||6.07||6.42|
|Aditya Birla Sun Life Arbitrage Fund||6.19||6.02||6.47|
The returns from each of the funds are around 6%.
Who should Invest in Arbitrage Funds?
Arbitrage funds are for the safe heaven investors who don’t want to be taking any risk. It is a more reliable way to invest, but it also means the returns from the funds are low — the main reason why I don’t consider investing in arbitrage funds.
Moreover, I like to be investing in more high growth mid-caps than to invest in safe heavens large-cap as well. It is how I prefer investing, and you have to find your process of investing that works well for your mindset with investing.
Are Arbitrage Fund Returns Taxable?
As these funds invest predominantly in equities, their tax treatment is at par with equity funds.
So holding them for more than a year means the returns classifies as long-term capital gains or LTCG.
Still, the funds are hybrid. Typically it means they can also invest in debt markets.
So it is better to take the tax calculation from a fund to fund basis instead of making a general viewpoint.
Is Arbitrage Fund Investing Risk-Free?
Investing in equity or for that matter, even in debt market investment does involve some amount of risk. So, the investment in the arbitrage funds is not risk-free, but the risk involved is very low when compared to other equity funds.
As the risk is very low, the returns aren’t great either.
As we have seen, the best fund returns have been as low as 6.73% annualized returns in the 5-year timeframe.
Kotak bank offers a savings bank account with 6% returns. So returns from arbitrage funds are not something to relook at.
Alok Ranjan says
Your article is always very useful.
I took your advice on mid cap and multi cap for Axis mid cap and parag Pariekh respectively and it proved very good decision.
Thank a lot.
Keep guiding us.
Shabbir Bhimani says
The pleasure is all mine and luckily we got that right 😀
Ayushmaan Singh says
sir, I am zerodha user. and if i take any delivery(buy) of share in NSE, then how to exit(sell) this trade in BSE. Because zerodha not give that type plateform, where I sell (exit) direct my NSE share in to BSE plateform.
Never look at regular funds, never use top 10 on VR…use their compare funds https://www.valueresearchonline.com/funds/fundSelector/returns.asp?cat=141&exc=susp%2Creg%2Cclose&rettab=ov
Shabbir Bhimani says
Any particular reason not to do that?
Nikunj Vadharia says
Thanks for clarifying all my doubts about arbitrage funds. You are a rock star shabbir.