Banking on Arbitrage

What are Arbitrage Funds?

●  Arbitrage is an investment strategy in which an investor simultaneously buys and sells an asset in different markets to take advantage of a price difference and generate a profit. 

●  Arbitrage fund are a type of mutual funds that leverages the price differential in the cash and derivatives market to generate returns. 

●  In a situation of high and persistent volatility, these funds provide investors a safe avenue to park their money.

How do they work?

● Arbitrage funds work on the misplacing of equity shares in the spot and futures market. They takes advantage of the price differences between current and future prices to generate returns. 

● The fund simultaneously buys shares in the cash market and sells it in futures markets. 

● Their risk level is comparable with that of a pure debt fund. They provide a good avenue for risk averse investors to safely invest their surplus.

Why Arbitrage Funds?

● Arbitrage Funds are a good alternative to Fixed Deposits, especially in case of HNI Investors.

● This is because they are more tax efficient as they are treated as Equity product.

● Arbitrage funds have a shorter lock-in period of 21 days. 

● A bank FD typically pays interest at 4.5%, which is taxable at normal  tax rates. while, on the other hand, these funds have generated 5.5% over the past one year 

● Arbitrage funds are best positioned to play rising interest rate cycle 

Who should invest?

● Any one can invest in these category of funds.

● Ideal replacement to your savings account and bank deposits.

Where to Invest?

     For further information and recommendations, please feel free to reach out to our team