In the May 2023 issue (http:// bit.ly/3CHOlly), we discussed some hybrid fund options that can replace debt in view of the changes in the taxation rules. We will now discuss arbitrage funds from the same point of view. They too come under the category of hybrid funds. Their taxation is similar to that of equity funds but they are less volatile than them. Let us look into the working of this category of mutual funds.
Arbitrage funds earn returns from the price differential between equity stocks in the cash market and stock futures market, for 65 per cent of the portfolio. The price at which a stock is sold in the stock futures market is higher than the price at which it is purchased in the cash or spot market. In the stock futures market, futures of multiple maturities are available. Usually, fund managers sell near-month contracts and not longer-maturity contracts. There is higher liquidity and better visibility in near-month contracts, such as potential corporate action from the underlying company.
The price difference between cash and futures represents the 'cost of funds' for the remaining days between the date of the transaction and the expiry of the futures contract the last working Thursday of the month. The concept of 'cost of funds' is that a trader or investor is deferring a transaction from the current date to the last Thursday of the month or till the expiry of the contract if Thursday is a holiday. For this deferment, other traders step in and conceptually 'fund' it. When a trader in the market purchases a stock in the stock futures market, the arbitrage fund manager sells the stock at a price higher than the cash market, and this price differential represents the 'cost of fund.
Esta historia es de la edición August 2023 de Outlook Money.
Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 9,000 revistas y periódicos.
Ya eres suscriptor ? Conectar
Esta historia es de la edición August 2023 de Outlook Money.
Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 9,000 revistas y periódicos.
Ya eres suscriptor? Conectar
BUDGET & YOU: NEW REGIME BEATS OLD IN FY26
Lower tax slabs and nil tax on incomes up to 12 lakh has not only provided relief to middle-class families but also rendered the old tax regime irrelevant for most of them. The government also renewed its focus on senior citizens
Consistent Returns In Hybrid Space
The Indian equity market is going through rough waters, leaving investors uncertain about whether to choose equity or fixed-income investments. Experts, meanwhile, predict higher volatility and recommend a safer approach.
BEHIND THE MIND GAMES THAT END IN 'DIGITAL ARREST'
The new scam of digital arrest employs psychological pressure to dupe vulnerable victims, who go through a phase of trauma and fear. We tell you how it works, whether the government is doing enough to curb the menace, and how you can keep yourself safe
Boost To Consumption, But Don't Buy Blindly
With the budget putting more money into the hands of people to boost consumption and increasing foreign direct investment in insurance, certain consumer-oriented sectors, such as FMCG, auto, as well as manufacturing are expected to do well, but think before investing
Pre-Existing Diseases In Insurance
Understanding pre-existing diseases (PEDS) in health insurance is crucial because they can affect your coverage and premiums. Pre-existing conditions, such as diabetes or heart disease, are health issues you may already have and know of before purchasing insurance.
'Govts Are Often Influenced By Private Interests, And Don't Focus On Health'
Longevity is not about going to the gym or having superfoods, but living in an environment that promotes a healthy lifestyle. Dan Buettner, the Blue Zones founder, National Geographic fellow, best-selling author and the producer of the Emmy Award-winning 'Live to 100: Secrets of the Blue Zone' series, learnt this during his decades-long research into five blue zones of the world. In an interview with Nidhi Sinha, Editor, Outlook Money, as part of the Wealth Wizards series, he talks about another kind of wealth, a healthy and fulfilling long life. He also talks about blue zones, and how policy matters when it comes to improving the health, lifestyle and longevity of the population
The 'Gap' In Long-Term Returns
There is a significant gap in the nominal and inflation-adjusted returns across asset classes. So, reading long-term trends is important before making investing decisions
Changed Jobs? Where is Your EPF Money?
For many employees, transfer of EPF becomes a nightmare when changing jobs. We give you the likely problem scenarios and what you should do for a seamless transfer of your EPF upon changing jobs and states
Old-New Break-Even Point Is High
The break-even point for deductions to choose between the old and new tax regimes has increased to ₹8.50 lakh for income of ₹24.75 lakh and above. Normally, deductions and exemptions commonly claimed by salaried individuals do not exceed ₹8.50 lakh
How Not To Be Financially Vulnerable
We often naïvely assume that our monthly pay cheques will cover whatever life throws our way. But it may not cover all our emergencies, which is why we need to create a safety net
