work on the mispricing of equity shares in the futures and spot market.Technically, it exploits the overall price differences between future and current securities to generate returns.The fund manager buys shares in the cash market and furthermore, sells it in derivatives or futures market.The difference in the cost and selling price is the return you end up earning.
Arbitrage funds leverage the inefficiencies of the market to generate profits for their investors in the intermediate horizon, thus, taking care of the equity exposure. Later, the fund manager allocates the remaining assets in the fixed-income generating instruments. Whilst doing this, the fund manager ensures that the investment is made only in high-quality debt securities like term deposits, zero coupon bonds, and debentures. This will help to keep the fund returns in line along with the expectations during the period of inadequate arbitrage opportunities.
Arbitrage funds make money from low risk buy-and-sell opportunities available in the futures and cash market. The risk profile isthesameasthat of a debt fund.These funds are tailor-made for investors who are looking for equityexposure butare prudent of risks associated with them.Arbitrage funds are a safe option for the risk-averse individuals who park their surplus money only when there is fluctuation in the market.
It becomes an important consideration whilst evaluating arbitrage funds; they charge an annual fee known as
expense ratio. It includes fund managers fees and fund managing charges.
There is no such counter-party risk in these funds as trades occur on the stock exchange. Even when the fund manager is buying or selling shares in
futures and cash market there is no risk exposure to equities.
However, the ride looks smooth, but dont get comfortable with these funds.
to make better returns, especially for those who can understand it and make the majority.
an alpha using price differentials in the market.
Make sure you keep in mind that arbitrage funds give no guarantee returns.
financial goals, then these funds are your pick.
In case, if you are already invested in high-risk equity funds, then you can opt for
systematic transfer plan fromequity fundsto less-risky funds (like arbitrage funds).
having a term horizon of 3-5 years. Though these funds charge exit loads, you can consider them only when you are ready to stay invested for minimal 3-6 months.
SBI Arbitrage Opportunities Fund Regular Growth
There is also a top performing arbitrage fund from Estee advisors i.e. I-Alpha. I-Alpha is mainly market neutral arbitrage product which aims to deliver consistent returns, while maintaining nearly zero market exposure. The fund has not had a single month of negative return since its inception.
Note: Investors should choose the funds as per their goals. Possibly, returns are subject to change.
Mutual fund investmentsare subject to market risks. Please read the scheme information and other related documents carefully before investing.
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