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Business News/ Brand Stories / How Arbitrage Funds Can Be Beneficial Investments in Volatile Markets

How Arbitrage Funds Can Be Beneficial Investments in Volatile Markets

How Top Arbitrage Funds Can Be Ideal Investments in Volatile Markets

How Top Arbitrage Funds Can Be Ideal Investments in Volatile MarketsPremium
How Top Arbitrage Funds Can Be Ideal Investments in Volatile Markets

Market turbulence. Money issues. Sound familiar? In a world where changes are inevitable, making choices on how to invest can seem like trying to walk through a field filled with bombs. But what if there was a plan that did well with uncertainty and provided potentially steady gains? When markets are unstable and the cost of goods differs, arbitrage mutual funds work well. Let’s enter the world of arbitrage funds.

Introduction to Arbitrage Funds

Arbitrage involves making money by taking advantage of the differences in prices. These funds use money to make the most of unfair situations, without taking a lot of risk. They mostly invest in stocks. People can also put money into short-term debt objects. One can usually invest their money for one to three years.

Tax Implications

Arbitrage funds are treated as equity funds for taxes. They offer special tax benefits. Short-term money gains that happen within one year are taxed at 15%. On the other hand, long-term money gains that take over a year to earn are taxed at 10%. This is applicable if you earn more than 1 lakh annually from such gains.

Associated Risks

Arbitrage funds carry some risks that investors should evaluate despite typically having lower risk profiles than other investment vehicles. Mostly, money is put into things that involve ownership. Sometimes, they also use debt when there are good chances for making money. However, the chances are not very common. The changes in interest rates make investments riskier. Moreover, credit risk can affect returns, too.

Who Should Think About Investing in  Arbitrage Funds? 

Arbitrage mutual funds may appeal to investors seeking relatively low-risk investment opportunities capable of generating modest, stable returns over time. As they aim to capitalize on small, temporary pricing inefficiencies between related securities, arbitrage funds are not tied to the directional movements of the overall market. This differentiated approach may benefit: 

Low-Risk Appetite and Search for Stability

If you care more about safety than making big, risky investments, using arbitrage funds could be a good choice. These funds usually have fewer changes in value compared to stock investments.

Limited Time Availability and Average Gains

The chances to make money from arbitrage only last for a short time. Arbitrage funds usually give a small return, which is not that impressive. People wanting stability may consider investing in these funds.

Steady Returns Across Market Phases

Arbitrage funds aim to provide regular gains in any market cycle – even if it’s rising or falling. In strong markets, the prices of futures contracts can sometimes be higher than the cash prices. For example, when the market is up and down, stocks can become wrongly priced. A smart person can make good use of these chances. It is a way to make extra money. 

Adaptability to Market Variations

The appeal of arbitrage funds is that they can change and work in different types of market situations. They aim to bring back consistent profits, even if the whole market goes up or down.

Investing In India With Arbitrage Mutual Funds:

Arbitrage funds work by buying securities in places where prices are not too high. It is then sold at the same time in places where prices are higher. In this way, you can potentially make money with limited risk. As a result, arbitrage funds may be suitable for investors seeking low-risk and short-term investments.

However, investing in mutual funds always involves some level of market risk. Arbitrage funds can be vulnerable to market risks. When it comes to making investment decisions, it is essential to carefully go through and understand all scheme-related papers. 


Arbitrage funds offer a balanced option for people who want safe and reasonable returns without putting all their money into risky options. Investors need to think about these advantages and risks. They should see how much risk they can handle, how long they plan to invest, and what they expect. 

Arbitrage mutual funds give investors a chance to get optimum returns, even while the markets are changing. They can use price differences between the markets to make better investments. This gives them a good way to earn returns. However, one needs to carefully check and understand one's plans and risks before making investment decisions.

Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same. The article does not constitute financial advice.

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Published: 01 Feb 2024, 08:01 PM IST
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