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Along with the the profit, the fund manager incurs some expenses such as brokerage charges.
The tax amount is deducted and the processed are send to the investor upon redemption.
4. If you are looking for small yet risk-less monthly returns, Arbitrage funds can provide them.
Arbitrage funds being equity-oriented funds, STT or Securities Transaction Tax is applicable.
If the market is more volatile and the fund manager can spot opportunities..
Since the scheme has a lot of corpus, the arbitrage trade should be liquid enough too..
Particularly when algorithm and automated trading happens.
If the fund manager is not able to find good arbitrage deals, he might not get any dividend at all. In other words, the monthly dividend might be a lot more volatile.
we can compare them to debt funds.So,Since the risk element in very low,you can go for these.In most of the cases,the returns too are lower and usually will be in line with the money market returns.This is exactly the fund manager does in this type of funds.So,the fund manager should be smart and quick enough to identify such mismatches and excute the pair trade quickly.Of course,the other one might come for the rescue.otherwise,if one fails for the month,i used a term called Arbitrage fund.Since both follow different approaches,such price mismatches do not stay for long time.Assume a company share is trading at Rs 1,the fund manager would buy on one side and might not be able to sell on the other side of the market.In general,it was referred as being a tax efficient investing method.So,Rs 500 per share is the profit an investor can make ..So we cannot compare different arbitrage schemes like we do in normal sense.The tax rates on these schemes will be Short Term Capital Gains orLong Term Capital Gainsdepending on the holding period.by buying stock in the cash market and simultaneously selling it in the futures market.The returns from arbitrage funds would not be consistent.In several of my discussions,000 in the cash marketSo Equity Short / Long term capital gains apply.1. If you are looking for a tax efficient gains of 6 to 9% per annum,the returns are dependent on the volatility of the asset.the arbitrage opportunity should be wide enough to be profitable.This is because the performance of the scheme depends largely on the identification of arbitrage pair.Hence,
Question: You mentioned about one Reliance Arbitrage Fund – MD option… Is that better than MIPs?
And of course, market conditions have to support as well.
2. If you trade directly in equity markets and have some short term losses there, Arbitrage fund gains could be used to offset them.
This is because, Arbitrage funds are treated as equity schemes.
Since the cash market buy and future market sell happens almost immediately, we can say they donot have much risk.
From an investor perspective, Arbitrage funds are tax efficient (over debt funds).
Is arbitrage fund safe investment? Will this protect capital?
Break your investment into two parts and allot one for the arbitrage fund and the other forMonthly Income Plansor MIPs.
On the other hand, in MIP, there is atleast some sort of guarantee from the debt allocation part to bring in the money necessary for the dividend.
If the trade is successfully executed, Rs 500 per share profit would come almost immediately.
3. If you want to park funds so as to route them to an equity scheme, Arbitrage funds can be your temporary scheme.
Hence, they are categorized in the lowest category of risks in the equity mutual funds ladder.
Not all arbitrage opportunities will be profiable because..
If the arbitrage fund is allowed to stay for 1+ year and when you need funds and redeem the units, the returns will be equity capital gains and hence tax free.
arbitrages (canceled out) the risks involved in the equity market by
Hence, lot of caution, care and timing is to be used.
He can make use of the situation to generate profit for the scheme.
These are unique schemes because they offer equity exposure with low risk.
Arbitrage Schemes are treated equity and hence the capital gains are treated as equityCapital Gains.
And in futures market, they are trading at Rs 1,500.
leveraging the price differential in the cash and derivatives market to generate returns.
The challenge lies in identification of such profitable pair trades.