Arbitrage funds are a category of mutual funds. These funds take advantage of the price differences in the cash and derivatives market to generate profits.
Arbitrage funds invest in commodities, currencies and stocks which leverage price differences across markets. The word arbitrage clearly explains how arbitrage funds work. Arbitrage means simultaneous buying and selling of equities and other securities and generating returns from the price differences of same assets in different markets.
Generally, arbitrage funds are bought in cash market and sold in futures markets. Futures market is where futures contracts are traded on a stock exchange. That is, contracts to buy a specific commodity, at a specific price on a future date called expiry date.
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An investor, who is interested in arbitrage trading, compares the price of an equity share in the cash market as well as futures market. Suppose the price of company A in the cash market is Rs 1000 and in the futures market is Rs 1200, then the investor buys this share and enters into a future contract to sell them at Rs 1200. Later, if the prices coincide on expiry date, the investor will sell the shares at Rs 1200 and make a profit.
See Also: What You Must Know About Mutual Funds?
See Also: Hedge Funds In India
See Also: What is Arbitrage Trading?
SL NO |
FUND NAME |
1 YEAR RETURNS (%) |
3 YEAR RETURNS (%) |
5 YEAR RETURNS (%) |
1. |
Axis arbitrage fund |
6.82 |
6.72 |
7.07 |
2. |
Edelweiss arbitrage fund |
6.97 |
6.86 |
7.11 |
3. |
ABSL arbitrage fund |
6.93 |
6.70 |
6.94 |
4. |
Kotak equity arbitrage fund |
6.71 |
6.71 |
6.95 |
5. |
Nippon India arbitrage fund |
6.90 |
6.94 |
7.17 |
Arbitrage funds are a category of hybrid funds ideal for investors who want to park their money for the short term. This gives an opportunity to gain exposure to equity with less risk. It is wise to invest in arbitrage funds when the market is fluctuating.
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