Two fund houses - DWS MF and Edelweiss MF have filed draft offer documents with SEBI. IDBI MF is also planning to file for its arbitrage fund next month.
After a slew of close ended equity funds, fund houses are queuing up to launch their arbitrage funds. Two fund houses - Deutsche Asset and Wealth Management (DWS) Mutual Fund and Edelweiss Mutual Fund have filed draft offer documents with SEBI. IDBI is also planning to file for its arbitrage fund with SEBI by next month.
No new arbitrage fund has been launched since October 2010 due to low market volume.
Arbitrage funds take advantage of the differences in prices of shares in cash and derivatives market. They work best in volatile markets as the fund takes opposite position in cash and futures market to make profits. These funds look for events such as share buy backs by companies and dividend declaration for generating arbitrage opportunities. Arbitrage funds are suited for investors with a low risk appetite who wish to take equity exposure for a short period of time.
Vikas Sachdeva, Chief Executive Officer, Edelweiss Mutual Fund is of the view that arbitrage fund adds value to client portfolios. He said “We have a good track record in managing hybrid funds and it’s in our DNA. Arbitrage fund gives better opportunity to diversify investments and take advantage of volatility in the market.”
Nikhil Kothari of Etica Wealth Management believes that a few fund houses are gearing up to launch their arbitrage fund in order to reap the benefits of difference in positions at various markets arising out of increasing market volume and sentiments. Also, arbitrage funds invest some portion in debt securities and yield of short term debt are very attractive at the moment, he added.
Presently there are 11 arbitrage funds in the market. These funds delivered an absolute return of 9% return over a one year period (slightly better than gilt and liquid funds) and 9% over a three year period, shows a Value Research data.
