ARBITRAGE FUNDS

India arbitrage fund is a type of equity-oriented hybrid mutual fund which makes a profit out of the difference in pricing of securities in two different markets. The securities are bought at lower prices from the cash market and sold in the futures market at a higher price. The difference is the profit earned through arbitrage. Hence, arbitrage funds perform well in a volatile market.  

Who should Invest

• Investors with a low risk profile can go for Arbitrage Funds as when markets are stable then not much price differentiation occurs and hence not much of benefit or a loss is possible. But when markets are volatile, arbitrage funds benefit from fluctuations
• Although there are other low risk investment options available but if investors want to have high gains from a high volatile market but also want to take calculated risks, then this fund is for them
• If an investor is looking to invest for short to medium duration then an investor may go for this fund

• These funds are taxed as Equity Funds. If an investor has made a capital gain of ₹50,000 on investment in an equity fund, Short Term Capital Gains Taxof 15% would be levied if s/he withdraws the amount within one year of investment. The payable tax would be ₹7,500.

• Also, if an investor has made a capital gain of ₹1.5 lakh on investment in an equity fund, and withdraws the amount after 1 year of investment, Long Term Capital Gains Taxof 10% would be levied on ₹50,000. ₹1Lakh is exempted from taxation. The payable tax would be ₹5000.