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Wealth managers advise HNIs to go for Arbitrage funds to tide over volatility

Arbitrage funds exploits the price differences between current and future securities to generate returns.

, ET Bureau|
Sep 05, 2019, 10.07 AM IST
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Wealth managers are recommending arbitrage funds to rich investors who wish to invest in equity funds but are looking for some economic turnaround signals before putting the money.

“We are asking HNI investors who want to put in lumpsum investments to stay invested in arbitrage funds which can help you earn between 5 per cent and 6 per cent. Once you see a turnaround in economic indicators for two consecutive months, like higher sales in auto or higher cement dispatches, investors could consider moving from this to equity funds,” says Jignesh Shah, Founder, Capital Advisors.

Poor returns from equity mutual funds over the last one year are worrying HNI investors. As per data from Value Research, while the large-cap category has lost 7 per cent , the mid-cap category is down 15.4 per cent. With corporate earnings showing no signs of revival in the first quarter of the financial year, investors want to wait and watch before committing money to equities.

“Arbitrage funds offer better taxation and the portfolio is fully hedged. Investors coming in do not have to worry about scanning balance sheets as in the case of debt funds,” says George Heber Joseph, CEO, ITI Mutual Fund. Tax advantage over debt funds, fully-hedged portfolios and low risk are driving investors to arbitrage funds. In the first four months of this financial year alone, investors have poured in Rs 15,000 crore in this category of funds. This has seen the category assets jump to Rs 64,000 crore in July 2019.

According to data from Value Research, the arbitrage fund category has given 6.06 per cent. Arbitrage funds exploits the price differences between current and future securities to generate returns.

In these schemes, the fund manager simultaneously buys shares in the cash market and sells it in futures or derivatives market and hence there is no risk. In a uncertain market, where corporate earnings is yet to catch up, many HNIs now prefer this category of funds due to lower taxation as compared to debt funds.

Also Read

ITI Mutual Fund launches arbitrage fund

Should mutual fund investors consider investing in arbitrage funds?

What is an arbitrage fund?

LIC Mutual Fund launches Arbitrage Fund

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