Arbitrage Funds Compare

Additional Useful Information

• An investor can buy “Units” of these mutual funds. These units can be purchased at a price which is called the “Net Asset Value or NAV”. The NAV of these funds keeps changing daily depending upon the changes in the stock prices of the companies that are held by them.

• The investor can sell these units anytime at the NAV price prevailing on the day of the sale.

• Total Purchase Amount	=	Number of Units X NAV as on the day of purchase
  Total Sale Amount	=	Number of Units X NAV as on the day of sale
  Total Gain	=	Total Sale Amount – Total Purchase Amount

• The fund house which issues an Arbitrage Fund may offer two options to select from –
• IDCW Option – In this option, growth in the mutual fund value is distributed back to the investor’s bank account in the form of periodic payouts called “Dividends”. This payout could be monthly or quarterly.
• Growth Option – In this option, growth in the mutual fund value is invested back in the fund for further growth. The investor’s gains are in the form of higher NAV price of the units of the fund.

• If an investor buys units in an Arbitrage Fund and sells them within a certain short period of time, then the fund house may charge the investor, certain nominal fees, at the time of the sale. These charges are the “Exit Load”. This period is typically less than 1 year but varies from fund to fund. Typical exit loads can vary from 0 to 1% of the sale amount.

• Arbitrage Funds are considered a good investment option for investors looking for capital preservation with some regular income.

Returns *

• Arbitrage Funds do not guarantee any returns. They are subject to market risks.

• If Arbitrage Funds are held over a long term, they could generate returns ranging from 4.5% to 6% per year.

Risk Level

• Arbitrage Funds are categorized as low risk investments since they don’t indulge in buying and holding securities

Liquidity

• When an investor sells (or redeems) units of these funds, the fund house will pay the sale amount to the investor in 2 working days. (T+2)

Interesting Facts

• As per SEBI norms, if a mutual fund has an equity exposure of less than 65%, they are not considered as an equity focused fund. In this case, these mutual funds would be taxed as a typical debt mutual fund.

• However, if the equity exposure is more than 65%, it is considered as an equity focused mutual fund and is taxed just like a typical equity mutual fund.

• As a result, traders perform multiple trades in a day to accumulate significant profits.

• Arbitrage Funds provide diversification benefits. This helps reduce the risk of investment.

Tax Implications

• An Arbitrage fund lies above the 65% cut off to be considered as an equity focused mutual fund. Hence, it is taxed as an equity fund.

• When investors sell their Arbitrage Fund units, the difference between the Sale Amount and Purchase Amount is typically called “Capital Gain” or “Capital Loss” (if sale amount is lesser than the purchase amount).

• The tax that the investor must pay on Capital Gain is –
• Situation 1 – If the Arbitrage Funds are sold within a period of a year from investment, the Capital Gains earned (called Short Term Capital Gains) are taxed at 20% of the gain.
• Situation 2 - If the Arbitrage Funds are sold after a period of 1 year from investment, the Capital Gains earned (called Long Term Capital Gains) are taxed at 12.5% of the gain.

• There is no tax in case of “Capital Loss”.

• For any dividends/payouts received by investors from Arbitrage Funds, these amounts are added to their total taxable income and tax is required to be paid as per the tax slab.

Where To Invest

• Best Arbitrage Funds Ranked By ET Money

• Best Arbitrage Funds: Invest in Top Arbitrage Funds in India 2023 | INDmoney.