Bajaj Finserv Mutual Fund launched its Bajaj Finserv Arbitrage Fund, thus, prompting many investors to ask if investing in an arbitrage fund is worth the money put in. Many investors sideline the idea of putting money in these funds considering the meagre returns they fetch in the long run, despite staying invested for a decade or more.
With the launch of this new fund, the debate surrounding the efficacy of arbitrage funds again surfaces, thus, bringing to light the myriad reasons for which investors include them in their investment portfolios. The concept behind investing in arbitrage schemes is to seek profit by capitalizing on price disparities within both the cash and derivatives segments of the equity markets. Additionally, the remaining funds are allocated to investments in debt and money market instruments to further optimize returns and manage risk.
Investing in arbitrage strategies involves leveraging price variations among interconnected assets across distinct markets or segments. The objective is to achieve returns by harnessing these price divergences, typically while managing risk exposure.
Viral Bhatt, Founder, Money Mantra said, “Investors who want to profit from volatile markets without taking on too much risk. Arbitrage funds profit on price differentials in different markets. This means that if you are looking for safety in your investments and, at the same time, want to invest in securities beyond debt, arbitrage funds are for you. When choosing a suitable arbitrage fund in which to invest, select a fund that has a decent corpus size, low expense ratio, and experienced fund manager.”
Knowing who should invest in these funds or do these funds add value to the overall growth of your portfolio is important. A look at the following illustration highlights how low earnings from these funds have only taken the sheen away from these funds.
Name of the fund
Five-year returns (in %)
10-year returns (in %)
Kotak Equity Arbitrage Fund
Nippon India Arbitrage Fund
ICICI Prudential Equity - Arbitrage Fund
Invesco India Arbitrage Fund
Bandhan Arbitrage Fund
The returns from most of the aforementioned funds are way below the inflation rate, which can be concerning for many. However, this does not imply that one must stop looking at these funds altogether.
Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates said, “You must invest in an arbitrage fund when you don’t want to put excess savings in equities because of the high valuation or if you are not aware of the nitty gritty of debt funds. Investors looking to park their funds for medium term may also consider these funds. Some people may also prefer them for their taxation benefits as arbitrage funds are taxed as equity funds (STCG at 15%; LTCG at 10% on earnings beyond ₹1 lakh) whereas fixed deposits are taxed at slab rates.”
Now that all has been said and understood about the alleged efficacy of arbitrage funds, many new investors are inclined to know if the newly launched arbitrage fund by Bajaj Finserv Mutual Fund will do any good to one’s investments. Considering how this is a new fund offer (NFO) by the fund house, there is no way that one can gauge the possible returns from this fund.
This only leaves investors to reroute their attention to existing mutual funds with a visible track record of proven performance. Given how so many fund houses have proved their mettle in wading through recurring volatility in the stock market and gained decent returns by navigating through varying stock prices in different markets, it would make more sense to consider investing in them (if required) than opting for an altogether new fund with zero track record.