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Stock Analysis, IPO, Mutual Funds, Bonds & More
Mutual-Fund

Definition of 'Arbitrage Fund'


Definition: Arbitrage fund is a type of mutual fund that leverages the price differential in the cash and derivatives market to generate returns. The returns are dependent on the volatility of the asset. These funds are hybrid in nature as they have the provision of investing a sizeable portion of the portfolio in debt markets.

Description: Arbitrage funds are the panacea for low risk taking investors. In a situation of high and persistent volatility, arbitrage funds provide investors a safe avenue to park their hard earned money. These funds capitalize on the market inefficiencies and generate profits for the investors. As these funds invest predominantly in equities, their tax treatment is at par with equity funds.

Also See: Mutual Fund, Debt Fund, Equity, Arbitrage, Liquid Fund, Hybrid Fund

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