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?

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