funds clocked a post-tax return of 9% compared to 8.4% by debt funds and
negative 4.1% by equity funds.
funds, which try to take advantage of price difference between cash and futures
(derivatives) markets to generate returns, have clocked the highest post-tax
returns of 9% during 01 July 2011 to 30 June 2012, outperforming all other
scheme categories. Debt funds posted 8.4% post tax returns while equity funds
were worst hit with negative 4.1% returns.
Arbitrage funds perform better during
funds have a low risk-return trade-off and generate moderate returns. Arbitrage
opportunities to be exploited depend upon the extent of volatility in the
equity market – the higher the volatility, the higher the returns. During the
volatile 2006-2008 period, arbitrage funds gave healthy post-tax returns of
8-9%. “The dividend option of arbitrage funds is further lucrative as dividends
are tax free for equity funds, while short maturity debt funds are subject to a
dividend distribution tax,” says Jiju Vidyadharan, Director - Funds and Fixed
report states that during the past three and six months, arbitrage funds gave
post-tax returns of 2.38% and 4.28%, respectively vis-à-vis 1.84% and 3.5% for
debt-short funds and 1.99% and 3.74% for ultra-short term funds.