Best Arbitrage Mutual Funds

Arbitrage fund is a type of mutual fund that has the characteristic of having low-risk and working well in an unstable or volatile market. When there is a price difference for a particular share, in the cash market (Or spot market) and the future market (Or derivatives market), arbitrage funds act as an advantage by using the price difference as their profit.

The best arbitrage funds buy from the cash market for a low price and sell in the future market for a higher price, and hence use the stock markets volatility to the advantage of the investors.

Greater the uncertainty and instability in the market, greater is the profit for the investors. The fund manager handles the hard-earned money of the investors with the utmost safety.

In an arbitrage fund, the fund manager earns profit for the investor by simultaneously buying shares in the cash market and selling it in the derivatives market. Essentially, the difference between the cost and selling price is the return earned by the investors.

Here’s an example to understand how best arbitrage funds in India work - – A company’s stock is trading at Rs. 2000 in the cash market and Rs. 2500 in the derivatives market. Therefore, when investors buy the share from cash market and sell in the derivatives market, simultaneously, they earn a profit of Rs.500 per share. To earn a consistent gain, arbitrage funds need to execute a large number of trades each year.

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Top 10 Arbitrage Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
Nippon India Arbitrage FundHybridModerately Low6.9%5star10,528
Edelweiss Arbitrage FundHybridModerately Low7.0%4star3,870
Kotak Equity Arbitrage FundHybridModerately Low6.7%4star17,486
Axis Enhanced Arbitrage FundHybridModerate6.7%4star2,908
IDFC Arbitrage FundHybridModerately Low6.9%4star11,944
Invesco India Arbitrage FundHybridModerately Low6.6%3star245
L&T Arbitrage Opportunities FundHybridModerately Low6.7%3star799
Indiabulls Arbitrage FundHybridModerately Low6.5%3star36
UTI Arbitrage FundHybridModerately Low6.8%3star3,309
Aditya Birla Sun Life Arbitrage FundHybridModerate6.9%3star5,493
ICICI Prudential Equity Arbitrage FundHybridModerately Low6.7%3star13,566
DSP Arbitrage FundEquityModerately Low7.0%3star1,020
DHFL Pramerica Arbitrage FundHybridModerately Low6.5%2star177
SBI Arbitrage Opportunities FundHybridModerately Low6.5%2star5,331
HDFC Arbitrage FundHybridModerately Low6.6%2star6,457
View All Top 10 Arbitrage Mutual Funds

Features of Arbitrage Mutual Fund

The main purpose of best arbitrage mutual funds is to provide greater returns to investors who look for a low-risk investment. The market price is often fluctuating and investors fear to lose their money, but these funds do not let market uncertainty and instability affect the investments and returns of the investor, rather prove it to be a blessing for them.

Best performing arbitrage mutual funds give the benefits of exposure to equity, while, avoiding any kind of risk. In cases where there is low arbitrage opportunity, the funds are managed to be kept in line with the expectations by fund manager when he allocates the remaining asset in other income-generating instruments that have high-credit quality like zero-coupon bonds, debentures, and term deposits.

Being a good option for the risk-averse individual, arbitrage funds can also profit from trading stocks on different exchanges, for example, Purchase of a stock of $75 on the ABC stock exchange and selling it for $75.25 on the XYZ stock exchange. Arbitrage funds lead investors towards greater returns in all ways possible.

Taxability

Tax treatment of arbitrage funds is equal to that of equity funds, as they invest mostly inequities. This equity-based fund has more tax advantages and is a preferred option during volatile conditions in the stock market.

For investors in the tax bracket of 20 percent or 30 percent, arbitrage funds are best mutual funds as they provide a safe space for their money.

The returns earned by holding best arbitrage funds for more than a year are tax-free; these are known as long-term capital gains (LTCG). A 15% tax is levied on income from these funds in the first year, and it’s known as a short-term capital gain (STCG). There is no dividend distribution tax on these funds, but when the stock market is unstable, rich dividends can be reaped with these funds.

Although, even the best performing arbitrage mutual funds are not suitable for short-term investors and to gain the tax benefits one needs to hold it for about one year.

As arbitrage funds are equity-based, they do involve certain risk but they’re still less risky than other equity-based financial instruments.

Major Advantages

Arbitrage funds have a lot of advantages, they are:

1.Low risk – As these funds are simultaneously bought and sold, there is not much risk involved if one is in for long-term investment. Arbitrage funds also invest a bit of their capital in the highly stable debt securities. With high tolerance, they also become highly appealing by investing more heavily in debt. Therefore, if arbitrage funds are less profitable, there are other ways of finding profit.

2.Works in a volatile market – It is one of the few kinds of low-risk funds that work profitably in a highly volatile market. As individual stock prices have a lot of difference in a volatile market, arbitrage funds get to use it to its advantage by the simultaneous buying and selling in different markets. Investors who look for low-risk but greater return in a volatile market, choose to go for arbitrage funds.

3.Taxed as equity funds - If one holds their shares in an arbitrage fund, which are treated as equity funds (long equity represents portfolio’s at least 65% ), for more than a year then gains received are taxed at the capital gains rate and not income tax rate. Capital gain rates are lower than income tax rate; hence arbitrage funds have a tax advantage.

Who Are These Funds Suited For?

Owing to the low-risk factor, these funds are best suited for investors who want a substantial profit from volatile markets with low-risk tolerance. Arbitrage mutual funds facilitate high net worth investors to invest their money for a short tenure because of the advantages over debt mutual funds when it comes to taxation. Ironic is, arbitrage funds’ risk level is the same as that of a pure debt fund. Investors with short to medium-term financial goals can opt for arbitrage funds. As an investor, if you are opting for Arbitrage Mutual Funds, you can rest assured of the following factors:

Risk factor: As the trades happen over the stock exchange, investors don’t have to bother about the counterparty risk involved.

Return on Investment: With reference to the past records, it is evident that arbitrage funds are one of the best options to earn reasonable profits for those who know it well and can make the most out of it.

Financial Goals: For investors with shorty to medium-term financial goals, arbitrage funds are the best fit. Moreover, these funds can even be used instead of a regular savings bank account to park surplus funds to save up for any emergency fund and also earn good interest rates on them.

Tax on Profit: When it comes to taxation, these funds are treated as equity funds. If one stays for a period of less than 1 year, he/she makes short-term capital gains (STCG) which are taxable and are taxed at a rate of 15%. Furthermore, if the investment goes on for more than one year, then gains are considered as long-term capital gains.

Let's have a closer look

Now let us jump and check about these top 10 mutual fund schemes.

Nippon India Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.91% annualized returns in the last three years. In the last year, its returns were 6.93%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.93% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹100.

Min Investment Amt₹5,000
AUM10,528Cr
1Y Returns6.9%

Edelweiss Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.86% annualized returns in the last three years. In the last year, its returns were 6.96%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.96% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM3,870Cr
1Y Returns7.0%

Kotak Equity Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.69% annualized returns in the last three years. In the last year, its returns were 6.69%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.69% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM17,486Cr
1Y Returns6.7%

Axis Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.7% annualized returns in the last three years. In the last year, its returns were 6.71%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.71% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM2,908Cr
1Y Returns6.7%

IDFC Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.79% annualized returns in the last three years. In the last year, its returns were 6.9%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.9% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹100. Minimum SIP investment amount required for this scheme is ₹100.

Min Investment Amt₹100
AUM11,944Cr
1Y Returns6.9%

Invesco India Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.57% annualized returns in the last three years. In the last year, its returns were 6.6%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.6% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹1,000
AUM245Cr
1Y Returns6.6%

L&T Arbitrage Opportunities Fund Direct Growth

Fund Performance: This fund has given 6.69% annualized returns in the last three years. In the last year, its returns were 6.66%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.66% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM799Cr
1Y Returns6.7%

Indiabulls Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.43% annualized returns in the last three years. In the last year, its returns were 6.54%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.54% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹500. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹500
AUM36Cr
1Y Returns6.5%

UTI Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.64% annualized returns in the last three years. In the last year, its returns were 6.76%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.76% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM3,309Cr
1Y Returns6.8%

Aditya Birla Sun Life Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.68% annualized returns in the last three years. In the last year, its returns were 6.89%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.89% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹1,000
AUM5,493Cr
1Y Returns6.9%

ICICI Prudential Equity Arbitrage Direct Growth

Fund Performance: This fund has given 6.64% annualized returns in the last three years. In the last year, its returns were 6.68%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.68% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM13,566Cr
1Y Returns6.7%

DSP Arbitrage Fund Direct Growth

Fund Performance: This fund has given NA annualized returns in the last three years. In the last year, its returns were 7%. It has continually hit its benchmark in the Equity segment.

Why to invest: It is one of the most remarkable Equity mutual funds in India. This fund has constantly outperformed other similar funds, providing 7% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹500. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹500
AUM1,020Cr
1Y Returns7.0%

PGIM India Arbitrage Fund Direct Growth

Fund Performance: This fund has given 6.5% annualized returns in the last three years. In the last year, its returns were 6.48%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.48% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM177Cr
1Y Returns6.5%

SBI Arbitrage Opportunities Fund Direct Growth

Fund Performance: This fund has given 6.57% annualized returns in the last three years. In the last year, its returns were 6.53%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.53% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM5,331Cr
1Y Returns6.5%

HDFC Arbitrage Fund Wholesale Direct Growth

Fund Performance: This fund has given 6.3% annualized returns in the last three years. In the last year, its returns were 6.58%. It has continually hit its benchmark in the Hybrid segment.

Why to invest: It is one of the most remarkable Hybrid mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.58% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,00,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹1,00,000
AUM6,457Cr
1Y Returns6.6%

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