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News From Press Low-risk returns from arbitrage funds

Low-risk returns from arbitrage funds

Source: Business Line Apr 16, 2018

Arbitrage mutual funds — a type of hybrid equity-oriented fund — takes advantage of the price difference in stocks in the cash and futures market.

Hence, they are best-suited for low-risk investors, as they offer steady returns and carry zero risk of capital losses. As the positions are fully hedged, these funds are effectively risk-free. Moreover, they have the facility to invest a major portion of the portfolio in FDs, debt and money market instruments that offer a better return.

 

Tax tangle

Mutual funds in India mostly trade on cash future arbitrage in individual stocks with liquid future contracts. For instance, Reliance Industries trades at 919 in the spot or cash market, and its one-month future trades at 924 on the same day.

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