Ask me anything about Arbitrage funds

AMA (Ask Me Anything)
22

Hi,

Theoretically future price is spot price + risk free rate. Hence, higher or lower the interest rates effect future price of an asset and thery arbitrage opportunity.

When market falls there is no effect on arbitrage as you loose in cash but you gain in futures as they are opposite positions (Buy stock and sell future). Huge redemption may have some impact on returns on arbitrage funds, but will not drive them negative on expiry to expiry trades.

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23

Hi,

These two funds are different and risk they carry are also very different. Arbitrage funds aim to generate low volatile returns from equity arbitrage opportunities that are risk free.

24

Hi @radhikagupta, welcome on the forum .

Are arbitrage funds, arbitrage mutual funds and mutual funds all are exact same thing?

Another thing, in simple terms, is the consumers money invested in mutual funds (or any of those mentioned above, whether they are or arenā€™t same) then flows to venture capitalist firms who then utilize these to generate returns by seed funding startups in some or other way?

25

@radhikagupta: Thank you so much !

I never understood why people do bulk fixed deposits in bank -of which only 1 lakh is insured by government - when they can earn a similar return with only 10% LTCG (which was previously tax free). I would think this would be wildly popular but not as much as one would think.

Any comments on why this product dosent sell as much as it should ?

26

So what are the arbitrage funds you recommend.

And do you recommend one with short term/overnight rates or limit position upto 10%

In both scenarios, do you recommend any fund ?

27

@radhikagupta

What is the tax treatment? Since you have Equity as well as Debt component?

28

Hi Radhika i am not sure and i donā€™t have to much knowledge about mutual funds. Can you make me aware is Arbitrage funds have ELSS plan or notā€¦?

29

Hi,

Arbitrage funds are different from ELSS. Arbitrage funds are suitable for short term parking. ELSS are equity funds suitable for long term wealth creation and they also give you tax deductions benefits under sec 80/c

30

Hi,

The tax treatment for Arbitrage is Equity as they maintain more than 65% in equity and related securities.

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31

Hi,

Go for a fund that is managed conservatively with no open equity exposures and are pure arbitrage funds.

32

Hi,

Awareness is the main resson why such funds are still not very popular amongst individual investors. Most investors in such fund are institutional in nature.

33

Arbitrage fund is a type of mutual fund. Mutual funds dont invest in private equities.