default: brand = brandCode;however,believes that the idea did not take off as expected. Tax efficiency was the primary reason why these funds were being sought out. But with spreads narrowing,if(status == cancelled) var renewHtml =Renew your plandocument.getElementById(userPlanSec).style.display = block;this category provides equity taxation advantage. Also.

since the stock was bought at₹100. In the derivatives market,=0 ) for(i=0;founder,if(!case lh_d: brand = HH Digital break;xhr.send();if(!*/ function getBrandName(brandCode) if(!publicationsObj.planName) return brandCode;return publicationsObj.planName[brandCode];document.getElementById(userPlanSec).innerHTML = html;the relatively lower yields in alternative options (post March) increases the categorys attractiveness. However,switch(brandCode) case ht_p: brand = HT Print break;document.getElementById(userPlanSec).innerHTML =Subscribe Now;a Sebi-registered investment advisory firm,that too does not exist anymore,build-up to the general elections,he said.The arbitrage spread has improved?

0) var planData = plan.subscriptions[0]; var status = planData.status; var purchaseSource = planData.source_device; var cancelHtml = ; var token = getCookie(token); if(status.indexOf(live) != -1) //cancelHtml =Cancel Plan; if(purchaseSource.toLowerCase() == web) if(signupSource != P && signupSource != K) cancelHtml =Manage Subscription; else if(purchaseSource.toLowerCase() == android && erAgent.match(/Android/i)) var falback_url = cancelHtml =Manage Subscription; if(status.indexOf(live) != -1 status.indexOf(non_renewing) != -1) document.getElementById(userPlanSec).style.display = block; if(status.indexOf(non_renewing) != -1) if(purchaseSource.toLowerCase() == web) if(signupSource != P && signupSource != K) cancelHtml =Manage Subscription; else if(purchaseSource.toLowerCase() == android && navigator.userAgent.match(/Android/i)) var falback_url = cancelHtml =Manage Subscription; var nextActivationDate = planData.current_term_ends_at; var nextBillingMonth = new Date(nextActivationDate).toDateString().split( )[1]; var nextBillingDay = new Date(nextActivationDate).getUTCDate(); var nextBillingYear = new Date(nextActivationDate).getFullYear(); var planDescription = planData.plan.description; var planName = ; var planPrice = planData.amount; //var planInterval = planData.shipping_interval; var planInterval = planData.duration; var planUnit = planData.interval_unit; var nextBillingHtml = nextBillingDay ?

Arbitrage is the price differential that may exist between two different markets for the same product. In the case of arbitrage funds, it is the difference between the cash and derivative segment of the equity markets for the same security. Arbitrage funds seek to lock in this price difference by taking equal but opposite positions in the cash and futures market.

+planDescName+ + nextBillingHtml + cancelHtml; else var html =

+planDescName+ + nextBillingHtml ; else var html =

+planName+ ₹+planPrice+ / +planInterval+ + nextBillingHtml + cancelHtml; var planDescName = ;// getBundlePlanDesc(planData.plan.base_plans); /* if(planData.plan.plan_type.toLowerCase() != bundle) planDescName = planDescription+ +planName; */ if(planData.plan.plan_type.toLowerCase() == bundle) planDescName = getBundlePlanDesc(planData.plan.base_plans); if(signupSource == P) var html =

If you are investing for the very short term, arbitrage funds may not be a good alternative since returns could be negative or low. For investment horizons of over three months, this category can be considered in volatile and buoyant markets to earn good post-tax returns.

buoyed by positive sentiment on near-term market rally,/* function getBrandName(brandCode) var brand = ;function hideOnPhonePe() var userAgent= navigator.userAgent;hideOnPhonePe();if(signupSource == P) var html =+ email;else document.getElementById(userPlanSec).style.display = block;return brand;_).join(;/subscription/fetch/userinfo/+ window.getCookie(token));Q4FY 19 earnings season etc. The current spread is one of the highest in the last few months. Along with the current opportunity,iThought Advisory,;publicationsObj.planName[brandCode]) return brandCode.if(userAgent.includes(phonepe-webview) && objectsToHide.length !else planDescName = planDescription+ +planName.

Arbitrage funds show spark but they are not for DIY investors

If you are investing for the very short term, arbitrage funds may not be a good alternative to liquid funds

Despite investing in the equity and derivatives markets, arbitrage funds do not carry the risks associated with equity investing. This is because the risk of volatility in the shares bought in the cash market is offset by the equal and opposite derivative positions.

Arbitrage funds score over liquid funds on the taxability of returns. Since they are taxed as equity funds, arbitrage funds taxshort-term capital gainsat 15% as compared to 30% for debt funds depending upon the tax bracket of the investor. Arbitrage funds and liquid funds pay dividends at frequent intervals to reduce the impact of capital gains taxes on withdrawals. The dividend distribution tax applicable on dividends paid is also lower at 10% for arbitrage funds as compared to 25% for liquid funds.

Arbitrage funds create positions to exploit the arbitrage opportunities available in the market. The difference between the two prices is the return for the fund and it is realized when the position created in the cash andderivative marketis closed on the expiry date of the future position.

console.log(failed to fetch publicatons,err)) /* var xhr = new XMLHttpRequest(); xhr.onreadystatechange = function() console.log(onreadystatechange pubications,xhr) if (xhr.readyState === 4) publicationsObj= JSON.parse(xhr.responseText); console.log(fetched publications,publicationsObj), xhr.send(); */ function getPlanNameByBasePlan(basePlan) console.log(baseplan,basePlan); if(!basePlan) return; return

We suggest arbitrage funds for investors looking to park their funds for about a year when they are planning for a vacation or an emergency etc., said Dilshad Billimoria, director, Dilzer Consultants Private Ltd, a Sebi-registered investment advisory firm. It is important to set the right expectations on return and risk in these funds so there is a proper education we do for clients to help them understand the idea of arbitrage funds before they invest, she added.

The change in the valuation norms of debt securities held by liquid funds are expected to bring down the returns from arbitrage funds as well. The returns from the arbitrage funds depend upon the basis or spread available between the prices in the cash and futures market for the stock.

the returns from liquid funds are expected to come down and experts see an opportunity in arbitrage funds given expectations of a near-term market rally. Is it time for arbitrage funds to make a comeback into your portfolio for your short-term needs?+planDescName +: ₹+planPrice + + nextBillingHtml ;fund manager,at₹100,case lm_p: brand = Mint Print break;case ht_d: brand = HT Digital break;) //getUserData().

Typically, the one-month future is used to set up this strategy since these are the most liquid contracts. When markets are buoyant or volatile, the opportunities to make profits from the positions taken may present themselves in a shorter time than the period to expiry of the futures position. This allows the funds to get reinvested orchurned more oftenand, thus, arbitrage funds give better returns in such markets. In steady markets, the positions are held to expiry, i.e. around 30 days, and the returns, typically, reflect short-term interest rates.

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Arbitrage funds arehybrid fundsthat invest in equity shares and the futures market but generate returns that are in line with short-term debt funds. Contrary to the image that their name conjures upa fund that invests in the risky derivatives market and earns high returnsthey are low-risk and their returns reflect short-term interest rates in the market.

this category can be considered in volatile and buoyant marketsYou are now subscribed to our newsletters. In case you cant find any email from our side,+ billingCycleText + : +nextBillingDay+ +nextBillingMonth+ +nextBillingYear+Shyam Sekhar,,case lh_p: brand = HH Print break;the investor makes a profit of₹3,case lm_d: brand = Mint Digital break;var objectsToHide= document.getElementsByClassName(hideOnPhonePe);

please check the spam folder.Investors use these funds to park short-term money that would have otherwise been held in liquid funds or ultra short-term funds. The lure is the possibility of higher returns without additional risk.Let us understand this with an example. A stock trades at₹100 in the cash segment and the one-month future trades at₹102. The strategy to earn this₹2 will be to buy the stock in the cheaper market,function fetchPublications() return fetch(/json/publications.json) .then(resp=+planDescName +: ₹+planPrice + + nextBillingHtml + cancelHtml;,the price in the cash and futures market will converge. Lets say the price on settlement is₹103. In the cash market,the cash market in this case,post the changes in the norms for valuation of debt securities,the investor makes a loss of₹1 since the future was sold at₹102. The total profit from this transaction then is₹2 3+(-1). This₹2 is locked in irrespective of the settlement price. What if the price on settlement is₹99? The cash position makes a loss of₹1 since the stock was bought at₹100. The future position makes a profit of₹3 since the future was sold at₹102 and is now being settled at₹99. The net profit on the trade is again₹2 (-1+3).Arbitrage fundshave given not-so-impressive returns in the past year or so compared to their competitors in theshort-term debt spacesuch asliquid funds. However,case lm_d_wsj: brand = LM DIGITAL WSJ break;and sell the more expensive stock future at₹102. On settlement day,publicationsObj) return brandCode;said Anand Gupta,investors should ideally consider arbitrage funds with three-six months or a higher time horizon,if(plan && plan.subscriptions && plan.subscriptions.lengthreplaceAll(getBrandName(publicationsObj.planNameEvent[plan])),document.getElementById(userPlanSec).innerHTML = renewHtml;iFor investment horizons of over three months,nerHTML = name[0];Reliance Mutual Fund.getBrandName(p)).join(+)?

However, in the period till expiry, the positions are marked to market and this may cause volatility in the net asset value. This is corrected once the positions are closed and the locked-in profit is earned. If the investor were to withdraw funds during this time, there may be a loss. Arbitrage funds usually impose an exit load for withdrawals before one month to discourage such activity.

Arbitrage funds show spark but they are not for DIY investors

This is not much of a do-it-yourself product and it is best if you take the help of an adviser who can decode the technical details of how the spreads are expected to behave.

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