Arbitrage Funds

About

Arbitrage Mutual Funds are a type of hybrid mutual fund that aim to profit from price differences between the cash (spot) market and the derivatives (futures) market for the same stocks or index. Fund managers buy stocks in the cash market and simultaneously sell equivalent futures, locking in small price differences (arbitrage) to generate mostly low-volatility returns.

Fund Type

Hybrid

Key Features

Often used to park short-term surplus funds with better post-tax returns than liquid/debt funds for some investors.

Gets some equity exposure without taking broad market direction bets.

No mandatory lock-in and offers redemptions any time

Treated as equity funds for tax, Can be advantageous for higher-tax-bracket investors.

Taxation

STCG

Holding Period ≤ 12 months, 20% Tax on Gain

LTCG

Holding Period > 12 months, 12.5% Tax on Gain

Dividends Tax

As Per Income tax slab rates, TDS of 10% may be deducted by the fund house if dividend income exceeds ₹5,000 in a financial year.

Exemption Limit

1.25 Lakh on LTCG in financial year

Indexation

No Indexation

Allocation

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Equity & Equity related Instruments

65%

Other

35%

Locked in Period

Nill

Exit Load

Some schemes might charge an exit load of 0.25% – 0.50% if units are redeemed within 7-30 days. However, the exact structure may vary based on the specific scheme.

Risk Associated

Equity Allocation ≥ 65%

Find the funds

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing. Past performance is not indicative of future performance.