Best Ranked Arbitrage Funds (May 2023) (2023)

An arbitrage fund is a unique type of mutual fund that falls into the stock category in tax terms, but is not volatile like other mutual funds. Arbitrage funds are fairly predictable and are best classified as hybrid mutual funds that involve controlled investments.

Arbitrage funds are considered risk-free and are best suited for investors with a low appetite for risk. Lower risk often confirms lower returns.

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These funds operate on the concept of buying shares in one market and selling those shares in another market, making a profit or arbitrage in between. An important feature of these funds is liquidity, which means the money is always available, unlike fixed deposits (FD) and high interest rate accounts.

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Best Performance Arbitrage Funds in India

fund nameAssets under management (AuM)plant type1 year return2 year returnreturn of 5 years
Invesco India Arbitration2.690,17instant growth6,62%11,40%31,74%
Kotak Stock Arbitrage Fund19.522,21instant growth6,12%10,83%31,67%
Tata arbitrage funds5.187,30instant growth6,03%10,60%Complete five more years
Edelweiss Arbitrage Funds4.316,85instant growth6,06%10,89%32,43%
SBI Arbitration Opportunity Fund7.587,09instant growth6,06%10,86%30,03%
Nippon India Arbitragefonds8.086,04instant growth5,92%10,64%32,09%
Bandhan Arbitrage Funds2.855,78instant growth5,91%10,31%30,99%
DSP arbitrage funds1.138,41instant growth5,90%10,06%30,34%
ICICI Fund for Prudential Arbitration9.751,26instant growth5,80%10,32%30,87%
Great Asset Arbitration Fund311.62instant growth5,81%10,25%Complete five more years
Aditya Birla Sunlife Arbitrage Fund3.551,60instant growth5,85%10,42%31,05%
All prices are current as of April 24, 2023.

How do arbitrage funds work?

Arbitrage funds work in a similar way to regular trading on stock exchanges, including the NSE and BSE.

These funds operate on a simple buying and selling concept to earn profits on the fly. They buy in one market and sell in another and make a profit in between. These funds make purchases in the cash market and invest in the futures markets, earning profits. The net equity exposure of these funds is zero.

Risks associated with arbitrage funds?

Arbitrage funds are considered risk-free compared to other mutual funds, as these funds are extremely predictable unlike any other type of fund. Therefore, there is not much risk involved, which is why investors prefer these funds.

Who should invest in these funds?

These funds are aimed at investors with low risk appetite and can be considered an important alternative to savings accounts and mutual funds, where savings account interest rates are lower and mutual funds are not sufficiently liquid. .

Arbitrage funds have the good characteristics of both mutual funds and savings accounts in that they have better liquidity, similar to savings accounts, and better interest rates like a mutual fund. But right now, FDs and savings accounts are generating much better returns than these funds.

Tax on arbitration funds

Arbitrage funds are technically stock funds and any gain you make when you sell a stock fund is taxable. You may also owe taxes on dividends you receive from the fund.

If the investment is held for a period of up to one year, the capital gains are called current and are subject to tax at the rate of 15%. If the investment is held for more than one year, the capital gains are termed as long-term and a long-term capital gains tax rate of 10% is applied if the gain exceeds INR 1 lakh per year. Long-term capital gains are tax-free up to the threshold of INR 1 lakh.

How to invest in arbitration funds?

Investors can invest in arbitrage funds by starting a Systematic Investment Plan (SIP) or by investing a lump sum:

SIP:You can start investing a fixed amount at set times, online or offline.

Fixed quantity:Here you can invest a large amount of money in one go, online or offline.

You can invest in the following ways:

Online: Investors must open an online account with the service provider. Here you review the KYC checks and link your bank account to this specific account. You must activate the direct debit option if you want to opt for a SIP.

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Offline: You will need to visit the mutual fund office and follow the KYC procedures and manually fill out a mutual fund form. Another form will need to be submitted to your bank to inform them of the direct debit in the case of a SIP. For a one-time investment, you must give the company a check for the full amount of the investment.

Cost of Investing in Arbitrage Funds:

The following are the things to consider before investing in arbitrage funds.

load output:Exit costs are the costs charged when exiting a fund. It must be verified that this fee does not exceed 1% of the total amount of money an investor receives when exiting a mutual fund.

transaction costs:This fee, as the name suggests, is charged when a transaction is made, that is, when you pay an amount to buy the units of a mutual fund. If an investor pays in a single installment, they will only be charged once and if investing through a SIP, they will be charged each time an installment is paid, as each SIP is considered an individual transaction. This fee must be between INR 100 and INR 150.

cost ratio:This is the total cost to maintain a mutual fund and is divided among all the units of a mutual fund. Ideally, it should be between 0.05 and 0.75%, but the upper limit given by SEBI is 1.05%.

Frequently Asked Questions (FAQs)

What is an arbitration fund?

The arbitrage fund is a type of hybrid mutual fund that uses the difference in prices between different markets to generate profit. The main objective of arbitrage mutual funds is to generate profits from price differences in different segments of the capital market.

How much does an arbitrage fund invest in stocks?

As per the Securities Exchange Board of India (SEBI) guideline, arbitrage funds must invest at least 65% of their investment in shares.

What is AuM in an arbitrage fund?

AuM refers to “assets under management”. It is the market value of all securities held by a financial institution.

How long should you stay invested in arbitrage funds?

One can treat it like a FD and double the money in 11 years, one can withdraw when there is a requirement as these funds are known for their liquidity.

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What is a growth plan?

If you opt for a growth plan, the fund's earnings will be reinvested in securities of the same fund for further earnings and to increase the investment amount.


What is the average return on arbitrage funds? ›

Which are the best Arbitrage Mutual Funds to invest in 2023?
Fund NameFund Category5 Year Return (Annualized)
Invesco India Arbitrage FundHybrid5.7 % p.a.
Edelweiss Arbitrage FundHybrid5.81 % p.a.
Kotak Equity Arbitrage FundHybrid5.68 % p.a.
Nippon India Arbitrage FundHybrid5.75 % p.a.
1 more row

Is this a good time to invest in arbitrage fund? ›

But in the regime of rising interest rates, the arbitrage funds are seen becoming more favorable in late 2022 and early 2023, as most of the time spreads of these funds move in line with short-term interest rate fluctuations in the economy.

What is the lock in period for arbitrage funds? ›

Consider investing in arbitrage funds for 6 or more months for better returns and 12 or more months for maximizing tax efficiency. On the contrary, liquid funds offer more liquidity. Once the 7-day lock-in period ends, investors are free to withdraw their funds without any significant risk of negative returns.

What are the disadvantages of arbitrage funds? ›

One of the primary disadvantages of arbitrage funds is their mediocre reliability. As noted above, arbitrage funds are not very profitable during stable markets. If there are not enough profitable arbitrage trades available, the fund may essentially become a bond fund, albeit temporarily.

Can you make a living off of arbitrage? ›

Arbitrage is the practice of taking advantage of a price difference between two or more assets or markets, and profiting until the price difference disappears. Recognizing arbitrage opportunities is one of the easiest ways to make money.

How risky are arbitrage funds? ›

Arbitrage funds rank high when it comes to safety. This is because the fund manager creates a market-neutral position by buying in the cash market and simultaneously selling the same security in the futures market.

How do I choose an arbitrage fund? ›

Choosing an Arbitrage Fund
  1. Since these are hybrid funds, you can look for the right proportion of the debt and equity components as per current market conditions.
  2. Consistency in terms of returns.
  3. Downside protection.
  4. Performance in comparison to similar funds.

What is the current arbitrage rate? ›


Are arbitrage funds better than liquid funds? ›

The returns from liquid and arbitrage funds remain quite similar on a long-term investment horizon. Arbitrage funds are likely to generate comparatively better returns than liquid funds. However, liquid funds tend to be quite stable and consistent in terms of generating returns.

How long does it take to withdraw from arbitrage fund? ›

Liquidity risk: Unlike liquid funds that can be redeemed almost immediately, it takes an investor up to 3 days to redeem his arbitrage fund. The fund amount is credited into the investor's account after 3 days as opposed to liquid funds which are credited into his account in 24 hours.

When to buy arbitrage funds? ›

Arbitrage funds are ideal for investors who want to invest in equity but don't want to bear the risks. In a fluctuating market, many investors who are averse to risk can park their money in an arbitrage fund and earn good returns.

What are the three conditions for arbitrage? ›

Trading conditions for arbitrage
  • The same asset has different prices on different markets. Markets may value an asset differently, which causes two unequal prices. ...
  • Two assets with the same cash flow have different trade prices. ...
  • An asset with a known future price holds a different price today.
Jun 24, 2022

Can I lose money in arbitrage trading? ›

In some situations, it is even possible for the investor to have a loss at the con- vergence date of the arbitrage. In this situation, the investor ends up worse off than if he had invested only in the riskless asset.

What is the minimum investment in arbitrage? ›

Minimum Investment Amount: The minimum amount required to invest in Axis Arbitrage Fund via lump sum is ₹500 and via SIP is ₹100.

Is arbitrage fund better than fixed deposit? ›

Difference Between Arbitrage Fund and FD

Risk – Arbitrage funds are risky in comparison with Fixed Deposits. The Deposit Insurance and Credit Guarantee Corporation (DICGC) offers insurance up to Rs. 5 lakhs. You should make use of this insurance scheme when investing in a fixed deposits plan.

Do you pay taxes on arbitrage? ›

Since arbitrage funds are categorised as equity funds, they are taxed accordingly. This gives arbitrage funds the benefit of zero taxes on the LTCG (long-term capital gains). If you hold the investments for more than one year, the returns are considered to be LTCG, and are tax free.

How do you avoid getting caught arbitrage? ›

To avoid getting caught with arbitrage profit, it's important to make sure you use different bookmakers and spread the bets between two or more bookmakers over several accounts.

What is the limit to arbitrage? ›

Limits to arbitrage is a theory in financial economics that, due to restrictions that are placed on funds that would ordinarily be used by rational traders to arbitrage away pricing inefficiencies, prices may remain in a non-equilibrium state for protracted periods of time.

Can arbitrage funds give negative returns? ›

If you are investing in an arbitrage fund, keep a minimum six-month horizon, and don't worry about some periods of negative returns. “Investors should not worry about short periods of negative returns.

Why do arbitrage funds give negative returns? ›

For instance, we have witnessed low returns from arbitrage funds recently. This is due to the deep correction we witnessed in March, which caused many stocks to trade at a discount than at a premium to their price. This diluted the returns of these funds. The arbitrage spread turned 10-20 bps negative in March.

Why is arbitrage trading banned? ›

Arbitrage is not illegal by itself, but it does have risks associated with it. These include allocating capital poorly. You could enter into contracts incorrectly. This could result in the buying or selling of an asset at an unfavorable price.

What is one of the easiest arbitrage strategies? ›

The simplest form of arbitrage is purchasing an asset in a market where the price is lower and simultaneously selling the asset in a market where the asset's price is higher.

What are the most common arbitrage opportunities? ›

Usually, the most common arbitrage opportunities are from buying and selling assets like stocks, bonds, or other financial instruments, commodities through futures contracts or retail arbitrage, or currencies. Still, a reasonable chance to make a riskless profit can occur anywhere.

What is the formula for finding arbitrage? ›

The next step is to identify whether or not there is an arbitrage opportunity here. For that, we need to use the arbitrage formula: A = Odds Team A + Odds Team B. Formula: A = Odds Team A + Odds Team B. If A<1: We have an arbitrage opportunity.

What is the biggest arbitrage ever? ›

At its peak, the trade netted 2.5% on unleveraged capital with zero credit risk, zero rate risk, and zero inflation risk. Barnegat returned +132% in 2009 and researchers nicknamed the trade "the largest arbitrage ever documented in the literature."

Which type of arbitrage is very rare? ›

This means the potential for pure arbitrage has become a rare occurrence.

Is arbitrage still working? ›

Crypto arbitrage trading is still possible today, although it has become more complicated than before. This is because there are now more exchanges and more liquidity in the market. As such, it is more difficult to find price differences that can be exploited.

What fund is the most liquid? ›

Mutual funds are considered liquid since investors can sell their shares at any time and receive their money within days.) Money-market funds, a type of mutual fund that invests in low-risk low-yielding investments like municipal bonds (Similar to mutual funds, money market funds are also liquid investments.)

What is the most liquid asset money? ›

Cash is the most liquid asset possible as it is already in the form of money. This includes physical cash, savings account balances, and checking account balances.

What is the safest and most liquid form to invest your money? ›

What are the safest types of investments? U.S. Treasury securities, money market mutual funds and high-yield savings accounts are considered by most experts to be the safest types of investments available.

What are the exit loads for arbitrage funds? ›

Due to frequent trading, arbitrage funds would incur substantial transaction costs and a high turnover ratio. Additionally, the fund may levy exit loads for a period of 30 to 60 days to discourage investors from exiting early. All these costs may lead to an increase in the expense ratio of the fund.

What is the exit load for arbitrage mutual funds? ›

Arbitrage Funds levy exit load which could be nil (for redemption of up to 10% of units before 30 days) or 0.25% if the money is redeemed before seven to 30 days (differs across funds). Depending on the scheme assets under management, these funds can charge anywhere between 0.16% to 0.60% under direct plans.

What is the success rate of merger arbitrage? ›

Investors who use the merger arbitrage strategy are well aware that their average odds of success are around 95%. An announced deal with a merger agreement has a very high probability of closing. But you know what they say about averages.

What time of day is best to buy a fund? ›

The opening 9:30 a.m. to 10:30 a.m. Eastern Time (ET) period is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.

Why should I invest in arbitrage funds? ›

Low risk: One of the primary benefits of investing in arbitrage mutual funds is that these are low-risk securities. As securities are bought and sold simultaneously, the risk associated with long-term investments is not applicable.

When the basis is arbitrage funds make good returns? ›

Historically, arbitrage funds are known to offer returns in the range of 7% to 8% over five years to ten years. If you are looking to earn moderate returns via a portfolio which has a perfect blend of debt and equity in a volatile market, then arbitrage funds are apt for you.

How much do arbitrage traders make? ›

Arbitrage Trader Salary
Annual SalaryMonthly Pay
Top Earners$112,500$9,375
75th Percentile$74,500$6,208
25th Percentile$36,000$3,000

What are the best coins for arbitrage? ›

Which coins can be used for arbitrage trading? Any coin can be used for arbitrage trading, such as Bitcoin, Ethereum, Litecoin, Ripple (XRP), USDT, and USDC. A coin with high volatility and unique opportunities would be a better choice majority of the time.

Is arbitrage trading easy? ›

Although this may seem like a complicated transaction to the untrained eye, arbitrage trades are actually quite straightforward and are thus considered low-risk.

How do you profit from arbitrage? ›

A successful arbitrageur profits by simultaneously purchasing financial assets at a lower price and selling them at a higher price, pocketing the difference. By taking advantage of the inefficiencies, arbitrageurs can earn risk-free profits because the financial assets being traded are equivalent.


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