Bajaj Finserv Arbitrage Fund, an offering from Bajaj Finserv Mutual Fund, has opened for subscription on Friday, September 8. The new fund offer (NFO) will be available till September 13, 2023. This is an open-ended hybrid scheme, whose primary objective is to generate returns by capitalising on arbitrage opportunities within the cash and derivatives segments of the equity markets.
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"Additionally, the fund will invest in debt and money market instruments, offering a diversified approach to potential returns. It is important to note that while the scheme aims to deliver substantial returns, there is no guarantee that the investment objective will be met," the fund house said.
This newly unveiled fund offers investors a chance to benefit from arbitrage strategies while maintaining a level of stability through investments in debt and money market instruments, it said.
Load structure
While the NFO has no entry load, exit load of 0.25 percent of applicable net asset value (NAV) is there if redeemed/switched out within 15 days from the date of allotment. The same is nil if redeemed/switched out after 15 days from the date of allotment. The scheme will not levy an exit load in case the timelines for rebalancing the portfolio, as stated in SEBI Circular dated March 30, 2022, are not complied with.
Investment amount
The minimum subscription amount allowed for investment in the NFO is Rs 500 and in multiples of Re. 1. Systematic Investment Plans (SIPs) are also available for investors looking to automate their investments.
About arbitrage funds
Arbitrage mutual funds operate on a unique investment strategy that capitalises on price discrepancies between various market segments. These funds typically consist of two main components: the equity book and the debt book.
The recent inflows
Arbitrage funds have drawn the spotlight in recent months, experiencing a notable surge in investor inflows. In July alone, these funds saw an influx of Rs 10,074 crore, marking a significant increase in interest compared to other hybrid mutual fund schemes.
One of the key catalysts for the rising interest in arbitrage funds stems from the diminishing allure of debt funds. The loss of the indexation benefit on Long-Term Capital Gains (LTCG) has rendered debt funds less attractive to investors.
According to the new debt fund taxation rules, the indexation benefit on LTCG is no longer available for investments undertaken on or after 1 April 2023. Instead, the gains are being added to the investor's taxable income and taxed as per their tax slab. Consequently, investors are exploring alternative investment avenues, and many have found their answer in arbitrage funds. This is because arbitrage funds invest primarily in equities. This is why they are taxed as equity funds, and the tax rate is much lower for them than the ordinary income tax rate levied on other types of funds.
A look at returns of these funds
| Scheme Name | 1-year return | 3-year return | 5-year return |
| Tata Arbitrage Fund - Direct Plan - Growth Arbitrage Fund | 7.51% | 5.46% | - |
| Invesco India Arbitrage Fund - Direct Plan - Growth Arbitrage Fund | 7.89% | 5.61% | 5.84% |
| SBI Arbitrage Opportunities Fund - Direct Plan - Growth Arbitrage Fund | 7.74% | 5.39% | 5.56% |
| Nippon India Arbitrage Fund - Direct Plan - Growth Arbitrage Fund | 7.49% | 5.42% | 5.86% |
| Edelweiss Arbitrage Fund - Direct Plan - Growth Arbitrage Fund | 7.55% | 5.50% | 5.92% |
| Mirae Asset Arbitrage Fund - Direct Plan - Growth Arbitrage Fund | 7.41% | 5.28% | - |
| ICICI Prudential Equity - Arbitrage Fund - Direct Plan - Growth Arbitrage Fund | 7.41% | 5.32% | 5.67% |
| Bandhan Arbitrage Fund - Direct Plan - Growth Arbitrage Fund | 7.49% | 5.28% | 5.68% |
(Source: Moneycontrol)
Should one invest?
Arbitrage funds are particularly suitable for investors seeking tax-efficient parking solutions. The recommended investment horizon for these funds is typically three months or longer.
"Recent trends indicate that arbitrage funds offer a relatively favourable risk-return profile compared to other available parking solutions. The combination of the unique investment strategy and the prevailing market conditions has bolstered their appeal," said Karthik Kumar, Fund Manager at Axis Mutual Fund in an earlier conversation with CNBC-TV18.com.
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