Arbitrage funds take advantage of the price differences between markets, offer consistency, and give a low-risk return by buying and selling related securities simultaneously. These funds like other mutual funds pay investors funds and invest in diversified portfolios managed by professionals.
An arbitrage fund is usually selected by people who want steady but safe growth. Investors gain access to a range of assets and benefit from expert management. Read on to learn more about compelling reasons for you to invest in arbitrage funds.
6 Reasons For Having Arbitrage Funds in Your Portfolio
Owing to the evolving political landscape worldwide, the share market is fluctuating more often than ever. Therefore, investors are seeking opportunities to invest in mutual funds wherein they can get steady returns and arbitrage funds are among them. Here are 6 reasons why arbitrage funds are a reliable option for people who want to park their funds safely while earning stable returns.
- Low Risk Factor
Since arbitrage funds capitalize on price differences between securities in different markets, the risk is minimized drastically. Fund managers can buy and sell securities simultaneously without gaining exposure to market volatility. This is an ideal strategy for conservative investors who want stable returns and minimum risks.
- Taxed as Equity Funds
Arbitrage funds are taxed like equity funds i.e. tax rate for short-term capital gains is 20% whereas gains going beyond Rs 1.25 lakh are levied 12.50%. Gains from investments for more than a year are classified as long-term capital gains, attracting a lower tax rate.
This offers a tax advantage compared to ordinary income tax rates, making arbitrage funds more tax-efficient. This saves money for investors and makes it a lucrative investment option.
- Reliable During Unstable Markets
Arbitrage funds are a reliable investment option in a volatile market or a bearish market. These funds perform comparatively better when there are unprecedented market fluctuations than when the market is moving in a linear direction.
For investors who are looking for a completely safe investment, arbitrage funds offer a consistent return even during uncertain economic periods.
- Diversification of Portfolio
Arbitrage funds are low-risk and low-volatility assets that will diversify your portfolio. These funds are different from traditional equities and bonds and act as a buffer against unexpected market downturns. Arbitrage funds are a good way to reduce overall portfolio risks and preserve capital.
These funds can add to the portfolio of conventional investors seeking stable returns as well as experienced traders who hedge against market fluctuations.
- Competitive Returns than Debt Funds
Arbitrage funds offer either better returns or those similar to debt funds. However, the risk with arbitrage funds is lower. While debt funds depend on interest rates and credit conditions, arbitrage funds generate returns by exploiting price inefficiencies.
Arbitrage funds also often outperform debt funds when the market is volatile.
- High Liquidity Factor
Arbitrage funds offer high liquidity which allows investors to access their funds without incurring significant loss. Investors can redeem their units with minimal penalties due to the short exit load periods.
Therefore, arbitrage funds are highly suitable for those investors who want quick access to cash.
Conclusion
Arbitrage funds offer a balanced investment approach. With low-risk strategies promising steady returns, arbitrage funds are great in uncertain markets. These funds capitalize on price efficiencies and maintain high liquidity which is a convenient option for investors and minimizes risks. Arbitrage funds are particularly beneficial for achieving long-term investment goals and also provide a reliable income stream.
