Arbitrage funds are gaining traction with investors in India because of their unique combination of stability and returns. These funds take advantage of price differences between different stocks and markets and have emerged as a very profitable investment method.
Especially, those looking for low risk opportunities and better returns compared to liquid funds prefer to invest in it arbitrage funds. Read on to know why arbitrage funds are gaining popularity among investors.
What Are Arbitrage Fees?
Arbitrage funds capitalize on price differences between different stocks to make a profit. For example, a fund manager may buy a stock at a low price on the NSE and sell it at a high price on the BSE when there is a discrepancy in the stock price between the two exchanges.
Arbitrage funds can also make a profit by capitalizing on the difference between current and future stock prices.
Considering the low risk involved in arbitrage funds, investors are gradually turning to this category. If you are serious investing in mutual fundscheck out the best arbitrage funds on the popular mutual fund platform, Dhan.
What Makes Arbitrage Funds So Popular?
Do you know that arbitrage funds in India saw the highest inflows among mutual funds in FY2024, at INR 90,846.11 crore? Why do you think these funds attract investors in large numbers? In this section, we will find out why these mutual funds are so popular.
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Stable Return with Low Risk
One of the main advantages of arbitrage funds is their ability to provide low risk returns. The strategy of fund managers of these funds involves exploiting inefficiencies in market prices. This approach is all about protecting against potential losses, which makes these funds weaker compared to equity funds.
Investors looking for a safe avenue during market volatility often find that arbitrage funds are a reliable choice. Some arbitrage funds even outperform liquid mutual funds and traditional fixed income investments.
Investors who invest their money in arbitrage funds enjoy significant tax benefits. In India, these funds are considered equity funds for tax purposes. This means, investors can benefit from the tax rates of long-term capital gains.
For Indian investors, this is an important point to consider. Compared to debt funds, long-term capital gains tax on equity funds is lower. This makes arbitrage funds an attractive option for those looking to maximize their after-tax returns.
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Portfolio Diversification
Arbitrage funds are not directly linked to the performance of the equity market. There are market movements, their benefits come from price differences. This makes arbitrage funds an ideal option for diversifying your portfolio.
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Liquidity and Flexibility
For many investors, liquidity is an important consideration while investing in mutual funds. Arbitrage funds offer good liquidity, allowing investors to enter and exit positions easily. This is especially beneficial for investors who may need access to their funds at short notice.
The track record of arbitrage funds speaks for itself. In recent years, these funds have been delivering strong returns, making them a reliable investment vehicle.
Amidst economic uncertainty such as inflation and unpredictable markets, investors find a much-needed anchor in the consistent performance of arbitrage funds. Regardless of the direction of the market, these funds can generate consistent returns.
The conclusion
Arbitrage funds, with their combination of low risk, stable returns, and tax benefits, are attractive to investors as a profitable option. Both beginners and seasoned investors looking for stable returns are turning to the best arbitrage funds.
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