Best Arbitrage Mutual Funds to Invest in September 2024

In September 2024, many investors are looking for safe and efficient ways to grow their wealth while keeping market risks low. Arbitrage mutual funds are one such option that offers returns by taking advantage of price differentials in different markets while maintaining a low-risk profile. If you're looking for a way to diversify your portfolio, investing in arbitrage mutual funds could be a great choice. This article will guide you through the best arbitrage funds to invest in this month, with a special focus on the Kotak Equity Arbitrage Fund Growth Regular, one of the leading equity funds in the arbitrage category.

What are arbitrage mutual funds?

Arbitrage mutual funds exploit the price differences between the cash and derivatives markets. Fund managers buy stocks in one market (cash) and sell them in another (futures), capturing the price differential to generate returns. The advantage of arbitrage funds is that they are relatively low-risk compared to other equity funds since they hedge positions and lock in profits regardless of market direction.

Arbitrage funds are treated as equity funds for tax purposes, which gives them a favourable tax treatment compared to debt funds, particularly for long-term investors.

Why invest in arbitrage mutual funds?

Low risk: Arbitrage funds are known for their lower risk compared to traditional equity funds since they aim to lock in profits through hedging.

Tax efficiency: Classified as equity funds, arbitrage funds enjoy better tax treatment, especially for long-term capital gains.

Liquidity: These funds are open-ended, allowing investors to buy and sell units at any time, making them highly liquid.

Kotak Equity Arbitrage Fund Growth Regular: A top performer

One of the best-performing arbitrage funds in recent years has been the Kotak Equity Arbitrage Fund Growth Regular. Known for its consistency and low volatility, this fund is a great option for investors seeking a combination of stability and moderate returns.

Key features of Kotak Equity Arbitrage Fund Growth Regular:

Stable returns: The Kotak Equity Arbitrage Fund Growth Regular has delivered stable returns over time, making it a preferred choice among conservative investors who want exposure to equity funds without high risk.

Hedging strategy: The fund uses hedging techniques to eliminate market risk while still taking advantage of price differentials in the cash and futures markets.

Liquidity: This fund is highly liquid, allowing investors to easily redeem their investments without worrying about lock-in periods.

The Kotak Equity Arbitrage Fund Growth Regular has consistently delivered annualised returns in the range of 4% to 6% over the past few years. While this might seem modest compared to aggressive equity funds, the low risk and tax benefits make it a strong choice for risk-averse investors.

Other top arbitrage mutual funds to consider

In addition to the Kotak Equity Arbitrage Fund Growth Regular, several other arbitrage mutual funds have shown strong performance, making them excellent choices for investors looking for stable returns with minimal risk. Here are some other top arbitrage funds to consider in September 2024:

1. Edelweiss Arbitrage Fund

The Edelweiss Arbitrage Fund has gained popularity for its low-risk profile and stable returns. This fund primarily invests in arbitrage opportunities across the cash and futures markets, offering returns similar to those of debt funds but with better tax efficiency.

• Returns: The fund has delivered returns in the range of 4.5% to 5.5% annually, making it a competitive option for conservative investors.
• Comparison: While similar to the Kotak Equity Arbitrage Fund Growth Regular, this fund also boasts strong risk management, making it a solid addition to a low-risk portfolio.

2. ICICI Prudential Equity Arbitrage Fund

The ICICI Prudential Equity Arbitrage Fund is another strong contender in the arbitrage space. It focuses on capturing arbitrage opportunities while maintaining a risk-averse portfolio.

• Returns: This fund has provided returns in the range of 4% to 6%, making it a consistent performer.
• Comparison: The fund is similar to the Kotak Equity Arbitrage Fund Growth Regular in terms of strategy, but investors may prefer this fund for its brand reputation and large asset base.

3. Aditya Birla Sun Life Arbitrage Fund

The Aditya Birla Sun Life Arbitrage Fund is known for its steady returns and low-risk profile. Like the other funds in this category, it invests in arbitrage opportunities across the cash and futures markets.

• Returns: The fund has delivered annualised returns of around 4% to 5%, making it a stable choice for investors seeking a low-risk option.
• Comparison: While not as aggressive in its approach as some other equity funds, this fund provides a stable alternative to those looking for safe investments with better tax treatment.

Why arbitrage funds are a good addition to your portfolio

Adding arbitrage funds to your investment portfolio can help diversify your assets while keeping your overall risk low. Here’s why arbitrage mutual funds are worth considering:

Risk mitigation: Arbitrage funds hedge positions in the cash and futures markets, which helps mitigate market volatility. This makes them a safe option compared to other equity funds.

Tax advantages: Since arbitrage funds are treated as equity funds for tax purposes, they provide tax benefits, particularly for long-term investors. Long-term capital gains (LTCG) from arbitrage funds are taxed at 12.5% if they exceed Rs. 1.25 lakh annually.

Steady returns: While arbitrage funds may not offer the high returns of aggressive equity funds, they provide steady returns with minimal risk, making them ideal for conservative investors or those looking to balance a riskier portfolio.

Conclusion

If you are seeking a low-risk investment option that offers better tax efficiency and stable returns, the Kotak Equity Arbitrage Fund Growth Regular could be an excellent choice for your portfolio. With its hedging strategy, the fund mitigates market risk while capturing small price differentials to deliver consistent returns. Compared to more volatile equity funds, this fund provides a safer alternative for conservative investors.