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16 Jul 2012 06:00 PM
Arbitrage funds outperform debt and equity funds: CRISIL 
Team Cafemutual
 

Arbitrage funds clocked a post-tax return of 9% compared to 8.4% by debt funds and negative 4.1% by equity funds.

Arbitrage 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 volatility.

“Arbitrage 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 Income Research.  

CRISIL 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.

 
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