What is Arbitrage Fund?|Short term High return| opportunities| taxation

Q: What is Arbitrage Fund?

Ans: Stocks are traded in different markets like NSE, BSE, Derivative market etc. Arbitrage fund means buying from one market and selling in another market. The difference in the price of the market will be its profit. BSE & NSE are cash market while futures depend upon the future price of the stock market. For example, if you buy a stock from NSE for Rs. 100 and its price in the futures market are Rs.110. So the profit from the fund will be Rs. 10. This change or profit is called an arbitrage opportunity. 

Arbitrage fund type(short term investment):

Arbitrage funds are a hybrid type of equity mutual funds in which debt investment is a very small ratio. Arbitrage funds make the profit from low risk buy and sell opportunities available in the market and the risk of the fund can be compared to debt funds. It is a good short term investment option.

Arbitrage Funds opportunities:

           Arbitrage opportunities can be seen when there is news about the stock market, quarterly or annual result of the companies, etc. Arbitrage funds give the best returns when the market is very volatile. Though arbitrage fund is a type of equity fund the risk is very low since the transaction takes place in different markets.

Taxation in Arbitrage Fund:

           Arbitrage funds are taxed like equity funds but returns are mostly equal to liquid funds. The arbitrage funds are invested in the short term(less than one year) and long term investment. The short terms investment is taxed 15% if the return is under 1 lakhs. In the long term, if in a financial year your returns are higher than 1 lakhs then you will be taxed 10% on your returns. 

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