GIVEN THE ATTRACTIVE spreads and the improving sentiment in the equity market, arbitrage funds are gaining traction from investors, especially among high-networth individuals. These funds offer an opportunity for high returns with moderate risk and investors are preferring them given the tax efficiency compared to liquid funds.
Arbitrage funds have seen an uptick in inflows due to the market volatility and decent post-tax returns as compared to liquid funds. These funds invest a minimum of 65% of the corpus in equity and the balance 35% in debt and cash instruments.
In these funds, the fund manager simultaneously buys shares in the cash market and sells them in futures or derivatives markets and the difference in the cost price and selling price is the return that the investors earns. The current spread is around 63 basis points (bps) as compared with around 40 bps in June last year.
Arbitrage mechanism
This story is from the June 05, 2023 edition of Financial Express Mumbai.
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This story is from the June 05, 2023 edition of Financial Express Mumbai.
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