The open-ended scheme will explore arbitrage opportunities in the cash and derivatives segments of the equity market, and invest the balance in debt and money market instruments. The new fund offer will run till September 13, 2023. Minimum investment is Rs 500
Bajaj Finserv Mutual Fund has launched the Bajaj Finserv Arbitrage Fund. It is an open-ended scheme designed to explore arbitrage opportunities. The new fund offer (NFO) opened on September 8, 2023 and will run till September 13. After the allotment of units, the scheme will reopen for sale and repurchase in five business days.
The fund will seek to capitalise on arbitrage opportunities in both the cash and derivatives segments of the equity markets. Additionally, it will invest the balance in debt and money market instruments. The scheme’s performance will be benchmarked against the Nifty 50 Arbitrage Index (TRI).
The minimum application amount is Rs 500 for lump sum investment and in multiples of Re 1. For systematic investment plans (SIPs), the minimum instalment amount ranges from Rs 500-1,000 with a minimum of 60 instalments, and at least six instalments for amounts exceeding Rs 1,000.
Arbitrage funds work on hybrid strategy and invest minimum 65 per cent in equity and equity-related instruments and the rest in debt and cash instruments.
Incidentally, arbitrage funds employ a strategy known as arbitrage, which involves simultaneous buying and selling of assets to capitalise on price differences across markets. For instance, an arbitrage fund might buy a stock in the cash market, while simultaneously selling it in the futures market, thus benefiting from price differentials. This difference tends to increase during market volatility, leading to enhanced returns for the fund. So, it is advisable for investors to commit to a minimum of six months to a year to experience various market phases and minimise risk.
From a taxation perspective, arbitrage funds, due to their equity allocation, are categorised as equity funds. Short-term capital gains are taxed at 15 per cent, while long-term capital gains attract a 10 per cent tax.