An arbitrage fund is a type of mutual fund that attracts investors who want to take advantage of volatile markets without taking too much risk. It is crucial to understand how they work and whether they make sense for your portfolio before investing in one.

The word arbitrary means random, whisper, or chance is taking. Similarly, an arbitrage fund takes advantage of changes in the prices of securities to buy and sell reasonably random, but calculative moves.

Instead of buying stocks and then later selling them after the price rises, an arbitrage fund, for example, buys stock on the money market and sells interest on the futures market at the same time.

How Arbitrage Funds Work

Arbitrage funds are running on the spot and there is a mispricing of equity shares in the futures market. … At the same time, the fund manager simultaneously buys shares in the cash market and sells it in the futures or derivatives markets. The difference between the selling price and the cost is the return you get.

Suppose that ABC Company’s equity trades at Rs.1, 230 in the stock market and R.1, 245 in the future market. The fund manager buys ABC’s share at Rs.1230 cash market shares and is like a futures contract to sell at Rs.1245 shares. The fund manager will sell the shares on the futures market and coincide with the prices to generate a risk-free profit of Rs 15 per share below the transaction cost by the end of the month.

Things to consider as an investor

  • Risk factor
  • Return
  • Cost of investment
  • Investment horizon
  • Financial goals
  • Tax on gains

How to invest in arbitrage funds?

Investments in debt funds are made paperless and hassle-free online. Using the subsequent steps, you can start your investment journey:

  • Sign in online
  • Enter your information about the investment amount and the date of investment.
  • Complete your e-KYC in less than 5 minutes
  • Invest in your favorite arbitrage fund in a hand-picked mutual fund

Top 5 arbitration funds in India

When choosing a fund, it would be better to examine the fund from different angles. Specific quantitative and qualitative criteria will help you determine the best investment arbitrage. Therefore, keeping your financial goals in mind, risk appetite and investment horizon will help.

Based on past one year returns, the following table represents the top 5 arbitrage funds in India. So investors can choose funds based on different investment periods, such as returns of 5 years or more than ten years. Some requirements, such as financial ratios, may also be included.

Fund Name

  • L&T Arbitrage Opportunities Fund- Regular Growth
  • Reliance arbitrage fund – Growth
  • Kotak Equity arbitrage fund -Growth
  • SBI Arbitrage Opportunities Fund Regular -Growth
  • UTI Arbitrage Fund Regular Plan-Growth

Conclusion: For investors who want to benefit from a volatile market without taking too much risk, arbitrage funds can be a good option. Despite the relatively low risk of arbitrage investment, payments can be unpredictable. Arbitration funds are considered as equity funds.

Investors need to monitor high expense ratios.


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