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Rich investors flock to arbitrage funds as volatility mounts
Synopsis
Chasing returns: Many investors are using the arbitrage funds to stagger investments into equity funds.
Rich investors have added ₹10,000 crore into arbitrage funds in March and April as they expect volatility in the markets due to state lockdowns and corporate earnings to generate higher spreads. Many are also using these instruments to stagger their investments into equity funds as this category has the potential to offer higher post-tax returns compared with liquid or overnight plans.
“Volatility is likely to continue in the market due to
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Should you invest in arbitrage funds?
Satya Sontanam
BL Research Bureau |
Updated on
May 01, 2021
The category enjoys beneficial tax treatment as it is considered as equity funds for taxation Arbitrage funds and liquid funds are both short-term investment options. With lower returns from liquid funds of late, arbitrage funds are coming into the spotlight.
While recent net inflows in to liquid funds have been volatile, it has been positive for arbitrage funds in the three consecutive months until March 2021. This could be due to the better performance of the latter in the recent past. In the last one-, three-, five-, six- and ten-month period, arbitrage funds delivered higher returns (on annualised basis) over liquid funds by 10-185 basis points.
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