With debt mutual funds losing their tax advantage, many savvy investors have turned to arbitrage funds, causing assets under management (AUM) in this category to rise from Rs 71,106 crore on April 30, 2023, to Rs 1,98,981.2 crore on October 31, 2024—an increase of 179.8 per cent. Franklin Templeton (India) Mutual Fund is the latest to launch a fund in this category (the new fund offer closes on November 18).
How do they work?
Arbitrage funds capitalise on price differences between the spot and futures markets. “They buy stocks in the cash market while simultaneously selling them in the futures market,” says Arun Kumar, head of research, FundsIndia. They allocate 30-35 per cent of their portfolios to short-term debt securities, primarily AAA-rated or government bonds, with duration under one year.
