Arbitrage funds witnessed a substantial decrease in net inflows. The category witnessed a fall of 88%, or Rs.6,296 crore to reach Rs.799 crore in February.
The decline in the net inflows was largely due to the fall in sales. The sale of arbitrage funds in February was half that of January.
Experts attributed this to cyclical liquidity crunch during the quarter and fiscal year-end. “Investors had shortage of surplus. These investors also park their money in liquid funds. We have seen that the liquid funds had a net inflow of around just Rs.1,000 crore in February,” D.P. Singh, CMO, SBI Mutual Funds, said.
The CMO added that inflows in arbitrage funds are also subject to the price differential between cash and future markets. “Most of the corporate investors look at the spread between cash and future markets to invest in arbitrage funds,” he said.
Radhika Gupta, CEO, Edelweiss Mutual Fund, also believes that the fall in inflows is a cyclical phenomenon. “It is a financial year-end impact. At the end of every quarter, investors redeem their investments from these funds to take care of the tax obligations. We have seen outflows in December primarily due to this reason,” she said.
Another key reason is the reintroduction of LTCG tax and introduction of dividend distribution tax that caught many investors off guard. “The favourable tax structure of equity funds has been stripped off, which in turn reduced the attractiveness of arbitrage funds,” D.P. Singh added.
Inflows in arbitrage funds
(Figures in crore Rs)
|
Month /net inflows |
Gross sales |
Redemption |
Net inflow |
|
February 18 |
6,127 |
5,328 |
799 |
|
January 18 |
12,647 |
5,552 |
7,095 |
Source: AMFI
The data also shows that although the net inflows in the category declined in February, the AUM of arbitrage funds stood at Rs.70,219 crore, up from Rs.69,578 crore in January.
