Here is the updated video with impact of LTCG tax:

The practice of buying from one market and selling at a higher price is known as arbitrage opportunity. When arbitrage opportunities exist, stocks can be purchased from one market (cash) at a lower cost and sold in another market (futures) at a higher price. Arbitrage opportunities are short-lived. As information flows, the arbitrage opportunity vanishes. Arbitrage is riskless profits. Returns from arbitrage fund mainly depends upon arbitrage opportunities available in the market. Also remember, more the number of Arbitrage funds lesser the expected returns and all will be chasing the same arbitrage opportunities. It is good for short term investments.

Main benefit of these funds are their tax advantage over Liquid and Debt Funds. Arbitrage funds are hybrid in nature. They invest in both equities and debt. Fund managers try to keep equity holdings over 65 per cent to make such funds get treated as equity funds. Thus, unlike short-term debt funds which are also treated as low-risk investments but attract tax, tax on long-term capital gains in such arbitrage schemes is nil.

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