Arbitrage Funds(Updated with LTCG Tax)

Arbitrage is the simultaneous buying & selling of an asset in different markets to benifit from the price difference.

A Stock can get traded on BSE & NSE : Cash Markets and Derivates Market (Futures).

for ex: Stock ‘A’ : Rs 100 -> BSE and Rs 102 -> Derivaties. So Arbitrage Fund Manager can make 2 Rs Arbitrage Profit in the tradeoff.

Do not invest into the fundamentals of the stock.

Free from risk of equity investing.

Are hybrid funds, investing a min of 65 % assets in equity & equity related instruments.

‘Type Scheme’ -> An open ended scheme investing in arbitrage opportunities.

Taxed as Equity

Performs best in a volatile market.

Returns like Liquid Funds. LF : 6.73 % pa, AF: 6.15 % pa.

Taxed like Equity.

Short Term(less than a year) : 15 %

Long Term(more than a year): 10%

Good for short term investment(less than 1 year)

Short Term                                                                                                               Liquid Fund Taxation

5% – Liquid Fund                                                                                                                    <3 years – as per slab

20% – Both look same.                                                                                                         >3 years – 20% after indexation

30% – Arbitrage Funds

Therefore, Arbitrage Funds are not a long term wealth creation tool (should be used < 1 year duration).

Returns -> risk free, -> depends on arbitrage opportunities.