Is arbitrage fund a debt fund?

These are features of most debt funds. Except, arbitrage funds aren’t debt funds! While liquid funds, ultra short term funds and overnight funds are debt funds, arbitrage funds are hybrid funds that only invest a part of their capital in debt instruments.

Which is better liquid fund or arbitrage fund?

Liquid funds are much safer in comparison to arbitrage funds, as it invests mainly in debt-related instruments. While arbitrage funds are riskier as the investment returns are dependent on the market volatility. They try to maximize the difference between the cash and futures market to generate greater returns.

Are arbitrage funds safe?

So, this is what an arbitrage fund looks to do to earn the return. Until it doesn’t find enough mispricing opportunities to execute such trades, it keeps the money invested in liquid fund type securities like treasury bills or very short-term fixed deposits. Now, from a risk perspective, they are fairly low on risk.

Why do arbitrage funds give negative returns?

We tell you why returns from arbitrage funds are low and should you invest. Arbitrage funds aim to capture the price difference between the spot and the futures market. “At times, this spread can turn negative—when the futures market is at a discount to the spot.

Are arbitrage funds still worth it?

Industry experts say arbitrage funds are a good choice for cautious investors who want to benefit from a volatile market without taking on too much risk. Secondly, they are taxed as Equity Funds. Therefore, they are taxed as equity funds since long equity represents an average of at least 65 per cent of the portfolio.”

Are arbitrage funds risk free?

An arbitrage fund is a type of mutual fund. Arbitrage funds can be a good choice for investors who want to profit from a volatile market without taking on too much risk. Although arbitrage funds are relatively low risk, the payoff can be unpredictable. Arbitrage funds are taxed like equity funds.

What is difference between debt and liquid fund?

While choosing to invest in mutual funds, there is often confusion for investors between debt funds and liquid funds. A debt fund is a broad mutual fund category that invests its collective pool of money in fixed income securities. In contrast, a liquid fund is a subset of a debt fund scheme.

Can arbitrage funds lose money?

Arbitrage funds may also profit from trading stocks on different exchanges. They could be bought on one stock exchange at a certain price and sold on another exchange at a higher price. Equities are more volatile than most asset classes with even the possibility of a capital loss over the short-term.

Are arbitrage funds risk-free?

Can you lose money in arbitrage funds?

How are arbitrage funds and liquid funds different?

Arbitrage funds India and liquid funds are very different products although their returns are quite comparable. This is because the difference between the spot and futures market is largely a reflection of the short-term interest rate. The additional returns in arbitrage, if any, come from the mispriced opportunities.

Why are arbitrage funds good for short term investors?

Arbitrage Funds are categorised as equity oriented schemes, hence, gains on units held for over a year are tax-free. Tax on Short Term Capital Gains on units held for less than a year is 15%, excluding surcharge and cess. Thus, arbitrage schemes provide low-risk and short-term investors a huge tax advantage.

Which is better fixed deposits or arbitrage funds?

With favorable tax treatment and at par returns with Fixed deposits, arbitrage funds seems to be a good option to park money for 1 to 3 years time frame. These funds suit people who are in higher tax slabs.

How much equity do you have to hold in an arbitrage fund?

These funds are required to hold at least 65% in equities (including derivatives) in order to remain as an equity fund under the tax laws. This proportion of equities held varies depending on the mispriced securities that a fund manager is able to identify.