Taking Advantage Of Arbitrage Funds

In the May 2023 issue (http://bit.ly/3CHOl1y), we discussed some hybrid fund options that can replace debt in view of the changes in the taxation rules. We will now discuss arbitrage funds from the same point of view. They too come under the category of hybrid funds. Their taxation is similar to that of equity funds but they are less volatile than them. Let us look into the working of this category of mutual funds. Arbitrage funds earn returns from the price differential between equity stocks in the cash market and stock futures market, for 65 per cent of the portfolio. The price at which a stock is sold in the stock futures market is higher than the price at which it is purchased in the cash or spot market. In the stock futures market, futures of multiple maturities are available. Usually, fund managers sell near-month contracts and not longer-maturity contracts. There is higher...