Parag Parikh Arbitrage Fund, an offering from PPFAS Mutual Fund, has opened for subscription on Monday, October 23. The new fund offer (NFO) will be available till October 27, 2023. The performance of the scheme will be benchmarked against the Nifty 50 Arbitrage Fund Total Return Index (TRI). Rajeev Thakkar, Raunak Onkar, Raj Mehta, and Rukun Tarachandani will manage the scheme.

Live TV

Loading...

The scheme aims to provide investors with an opportunity to generate capital appreciation and income by investing in arbitrage opportunities in the cash and derivatives segment of the equity market, and by investing the balance in debt and money market instruments, the fund house said.

The minimum amount of investment is ₹1,000 and in multiples of ₹1 thereafter. The scheme will re-open on November 3, 2023. The scheme will offer only ‘Growth Options’ under both Direct and Regular plans.

“This fund will provide investors with a low-risk, tax-efficient way to generate returns from the arbitrage opportunity in the Indian equity market. The fund can be advantageous to investors in an income tax bracket which benefits from the relatively tax-advantaged status that arbitrage funds enjoy compared to non-equity-oriented funds," Neil Parag Parikh, Chairman and CEO of PPFAS Mutual Fund said.

Rajeev Thakkar, Chief Investment Officer at PPFAS Mutual Fund, said, "An arbitrage fund allows investors to use equity-oriented funds in a low-risk manner."

The Parag Parikh Arbitrage Fund will invest in a basket of stocks that are expected to have a positive price difference between the cash market and the futures market.

Understanding arbitrage funds

Arbitrage is the simultaneous buying and selling of the same asset in different markets to profit from the price difference. In the Indian equity market, there is often a price difference between the cash market and the futures market. Arbitrageurs can capitalise on this price difference to generate returns.

These funds operate on a unique investment strategy that capitalises on price discrepancies between various market segments. These funds typically consist of two main components: the equity book and the debt book.

Arbitrage funds have drawn the spotlight in recent months, experiencing a notable surge in investor inflows. One of the key catalysts for the rising interest in arbitrage funds stems from the diminishing allure of debt funds. The loss of the indexation benefit on Long-Term Capital Gains (LTCG) has rendered debt funds less attractive to investors.

A look at returns of some of the arbitrage funds

(Source: Moneycontrol)

Should one invest?

Arbitrage funds are particularly suitable for investors seeking tax-efficient parking solutions. The recommended investment horizon for these funds is typically three months or longer.

"Recent trends indicate that arbitrage funds offer a relatively favourable risk-return profile compared to other available parking solutions. The combination of the unique investment strategy and the prevailing market conditions has bolstered their appeal," said Karthik Kumar, Fund Manager at Axis Mutual Fund in an earlier conversation with CNBC-TV18.com.

(Edited by : Amrita)

First Published:Oct 16, 2023 2:32 PM IST