Your Definitive Guide to Select ELSS [Edition 2020]

Guide to Long Term Wealth Creation With Equity Mutual Funds

Your Guide To Build An All-Season Mutual Fund Portfolio

Understanding Mutual Funds – Equity, Debt, and Gold

Your Comprehensive Guide to Tax Planning 2019

The Complete Guide to Public Provident Fund (PPF)

All You Need To Know About SIPs Edition 2017

Definitive Guide To Successful Equity Investing

Sundaram Arbitrage Fund: Arbitrage Strategies to Provide Opportunity?

Sundaram Arbitrage Fund: Arbitrage Strategies to Provide Opportunity?

The equity markets have been extremely volatile lately, while the bond markets arent safe either. In fact, it has made investors jittery. With both the prime asset classes being uncertain, is there a way out for the investors?

However, it is noteworthy that the equity markets are showing some green shoots in terms of attractive valuations in the non-large cap domain. The probability of looming volatility cannot be ruled out, as all eyes are on the upcoming budget. Only way to unlock the potential of volatility would be through arbitrage opportunities by launching an arbitrage fund.

An arbitrage fund is a sub-category ofHybrid fundthat seeks opportunities from differential pricing in two different segments (spot and futures or cash and derivatives) of the equity market. Such opportunities are usually tapped in volatile market conditions.

Typically, an arbitrage fund is less risky than thepure equity fundbecause participants are not speculating on market movements. Instead, they bet on the mispricing of a share/asset that has happened between two related markets. It is seen that the mispricing of security is far more frequent in high volatility months than in low volatility months.

Thus, Sundaram Mutual Fund as well launched Sundaram Arbitrage Fund (SAF), an open-ended arbitrage scheme investing in arbitrage opportunities. The scheme will follow arbitrage strategy and invest at least 65% of its total assets in equity & equity related instruments as per the mandate under normal and defensive conditions and will hedge its assets.

Hence in terms of risk-return potential, SAF is moderately low and suitable for investors who have a moderately low risk-appetite and are seeking income through investment in fully hedged equity investments (arbitrage opportunities) and fixed income instruments.

An open-ended scheme investing in arbitrage opportunities

To generate income with minimal volatility by investing in equity, arbitrage strategies which fully offset the equity exposure and investments in debt instruments. However, there can be no assurance that the investment objective of the Scheme will be realized.

Dividend (Reinvestment, Pay out and Sweep facility)

For redemption within 15 days from the date of allotment – 0.25%.

Under normal circumstances, the asset allocation pattern shall be as under:

Table 2a:Asset Allocation under normal circumstances

Derivatives including Index Futures, Stock Futures, Index Options and Stock Options, etc.

Debt securities, money market Instruments & cash and cash equivalents

@The fund will not have any net long equity and all equity positions will be hedged fully i.e. the equity portion of the Scheme will be hedged 100% at all times.

In times where arbitrage opportunities are scarce / not attractive the asset allocation to be as follows:

Table 2b:Asset Allocation under defensive circumstances

Derivatives including Index Futures, Stock Futures, Index Options and Stock Options, etc.

Debt securities, money market Instruments & cash and cash equivalents

@The fund will not have any net long equity and all equity positions will be hedged fully i.e. the equity portion of the Scheme will be hedged 100% at all times.

The Sundaram Arbitrage Fund will seek to achieve its objective by investing in equity, arbitrage opportunities that fully offset the equity investments and debt/money market instruments. The investment in equities would be a blend oftop-down and bottom-up approachwithout any market capitalization bias. Arbitrage opportunities would seek to exploit mispricing between cash and derivative market.

The scheme will not have any net long equity and all equity positions will be hedged fully, i.e. the equity portion of the scheme will be hedged 100% at all times. Plus, the scheme will also invest in debt and money market instruments.

The returns generated for the scheme would come from the following: Arbitrage Opportunities – The market provides opportunities to derive returns from the implied cost of carry between the underlying cash market and the derivatives market.

This provides for opportunities to generate returns that are possibly higher than short-term interest rates with minimal active price risk on equities. The implied cost of carry and spreads across the spot and futures markets would potentially lead to profitable arbitrage opportunities.

Debt and Money Market Instruments: The fund may invest up to 35% in normal circumstances of the net assets of the scheme into debt and money market instruments. The investment in debt securities will be guided by credit quality, liquidity, interest rates and their outlook. And the scheme may also invest in the schemes of mutual funds.

The Investment Process may be classified into:

Portfolio Construction & Selection of Investment

The Sundaram Arbitrage Fund will be co-managed by Mr S. Bharath and Mr Rohit Seksaria.

Mr S. Bharatha commerce graduate (B. Com), completed his MBA, Financial Risk Management (FRM) and ICWA. He has 6 years of experience in Fund management.

He has been associated with Sundaram Asset Management Company Ltd from April 2018. Prior to that, he has worked as a Fund Manager and Research Analyst.

Currently at the fund house, some of the schemes which Mr S. Bharath manages includeSundaram Smart Nifty 100 Equal Weight FundSundaram Value Fund Series IItoSundaram Value Fund Series XandSundaram Long Term Tax Advantage Fund Series ItoSundaram Long Term Tax Advantage Fund Series III,Sundaram Infrastructure Advantage Fundand equity portion ofSundaram Equity Savings Fund.

Mr Rohit Seksaria,has a bachelors degree in commerce (B. Com), a PGDM and is a CFA. He has a work experience of over 12 years in Fund Management and Equity Research. He is a dedicated fund manager for investments in overseas securities.

Mr Rohit is currently an Assistant Fund Manager of Equity at Sundaram Asset Management Company Ltd. Before joining the fund house, he was a Senior Analyst at Progress Capital Pte Ltd, Singapore and Matchpoint Investment Management Asia Ltd, Hong Kong. Prior to that, at Irevna Research Services Ltd he worked as the Head of Research and as a manager at UTI Mutual Fund.

Currently at the fund house, some of the schemes which Mr Rohit jointly manages include,Sundaram Long term micro cap tax advantage Fund Series IIIto Sundaram Long termmicro cap tax advantage Fund Series VISundaram World Brand Fund Series – IIandSundaram World Brand Fund-IIISundaram Select micro cap Series VIIISundaram Select Micro Cap – Series XIIandSundaram Select Micro Cap – Series XIVtoSundaram Select Micro Cap – Series XVIISundaram Services FundSundaram Debt Oriented Hybrid Fund(equity Portion),Sundaram Long term cap tax advantage Fund Series IIIandtoSundaram Emerging Small Cap – Series VIISundaram Long Term Tax Advantage Fund – Series IIIandSundaram Long Term Tax Advantage Fund – Series IV.

Sundaram Arbitrage Fund proposes to invest in arbitrage opportunities to generate income with minimal volatility. Since SAF is skewed more towards equities, the fortune of scheme will be closely linked to how astutely the fund managers cites these opportunities.

As mentioned, the scheme proposes to invest in equity and equity related instruments by identifying and exploiting price discrepancies in cash and derivative segments of the market. These investments by nature are volatile as the prices of the underlying securities are affected by various factors such as liquidity, time to settlement date, news flow, spreads between cash and derivatives market at different points of time, trading volumes, etc.

Tapping arbitrage opportunities is a challenging task, owing to the key risks associated with the arbitrage strategy:

*The risk of mispricing or improper valuation and the inability of derivatives to correlate perfectly with underlying assets, rates, and indices.

*Execution Risk: The prices which are seen on the screen need not be the same at which execution will take place. This is because arbitrage opportunities are often short-lived.

Another noteworthy pointis that the SAF is also expected to have a high portfolio churn, especially in a volatile market. While there is an execution risk when implementing arbitrage strategies across various segments of the market, it may result in missed investment opportunities, or may also result in losses/high transaction costs.

Hence, the performance of the Sundaram Arbitrage Fund depends on the swift effective versatile construction of the portfolio using the arbitrage strategy.

Thus, as an investor, before you invest in any arbitrage fund, you ought to recognise that arbitrage opportunities might not always work out. Since theres a 10% Long Term Capital Gains Tax (LTCG) on arbitrage funds for gains above Rs 1 lakh in a financial year, arbitrage funds have become unattractive for big-ticket investments.

[Read:How LTCG Tax On Equity Investments Can Derail Your Financial Plan]

So, before investing consider your investment objective, time horizon, and risk appetite.

How Yes Banks Fall Impacts Your Mutual Funds

Oppo Kash Can This App Get You Financial Freedom?

D-Street Catches Flu Here Is How To Approach Mutual Funds Now

Why This New Mid Cap Fund May Not Be The Best Bet For Investors?

HDFC Top 100 Fund: Looking To Regain Lost Shine

Coronavirus Has No Antidote. Your Bad Investments Could Have.

Kotak Equity Opportunities Fund: Capitalising on Market Opportunities

Canara Robeco Equity Diversified Fund: Seeking Broad-based Opportunities

Axis Small Cap Fund: Optimising Rewards through High Conviction Bets

Mirae Asset Hybrid Equity Fund: Seeking Opportunities in Dynamic Market Conditions

DSP Midcap Fund: Benefitting From Efficient Stock Selection

Your Definitive Guide to Select ELSS [Edition 2020]

Definitive Guide To Successful Equity Investing

How To Become A Millionaire With Mutual Funds

Guide To Build An All-Season Mutual Fund Portfolio

The Unstoppable Sensex Your Investment Strategy Guide

Copyright © Quantum Information Services Pvt. Ltd.

Legal Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is an independent Mutual Fund research house and SEBI Registered Investment Adviser(Reg. No: INA000000680). This does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an As Is basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. The services rendered by PersonalFN are on a best effort basis. PersonalFN does not assure or guarantee the user any minimum or fixed returns. PersonalFN and its employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. Use of this information is at the users own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute the newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. Mutual Fund Investments are subject to market risk, read all scheme realated document carefully. As a condition to accessing PersonalFNs content and website, you agree to ourTerms and Conditions of Use, available here. This service is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Quantum Information Services Private Limited or its affiliates to any registration or licensing requirement.

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai – 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400021. Email: Website: Tel.: 022 61361200 Fax.: 022 61361222

SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

Phasellus pellentesque pretium consequat. Nullam tempor tempor massa in sagittis. In sed lacus ornare velit suscipit tincidunt. Donec ac nunc orci. Suspendisse pulvinar urna at ante semper euismod. Phasellus pellentesque pretium consequat. Nullam tempor tempor massa in sagittis. In sed lacus ornare velit suscipit tincidunt. Donec ac nunc orci. Suspendisse pulvinar urna.

Phasellus pellentesque pretium consequat. Nullam tempor tempor massa in sagittis. In sed lacus ornare velit suscipit tincidunt. Donec ac nunc orci. Suspendisse pulvinar urna at ante semper euismod. Phasellus pellentesque pretium consequat. Nullam tempor tempor massa in sagittis. In sed lacus ornare velit suscipit tincidunt. Donec ac nunc orci. Suspendisse pulvinar urna at ante semper euismod. Phasellus pellentesque pretium consequat. Nullam tempor tempor massa in sagittis. In sed lacus ornare velit suscipit tincidunt. Donec ac nunc orci. Suspendisse pulvinar urna at ante semper.

Phasellus pellentesque pretium consequat. Nullam tempor tempor massa in sagittis. In sed lacus ornare velit suscipit tincidunt. Donec ac nunc orci.

Suspendisse pulvinar urna at ante semper euismod. Phasellus pellentesque pretium consequat. Nullam tempor tempor massa in sagittis.