Investors are increasingly preferring arbitrage funds over liquid and ultra-short-term funds for parking their short-term capital to capitalise on the price differentials between cash and derivative markets. The tax structure is also making these funds attractive for individuals in the highest tax bracket.
On a pre-tax basis, arbitrage funds have delivered an average return of 7.1% in the last one year, outperforming liquid funds (6.7%). While the differences might seem modest on a pre-tax basis, the post-tax differentials are substantial, nearing 200 basis points, enhancing the attractiveness of arbitrage funds as an investment option.
