Top Arbitrage Mutual Funds to Consider for Investment in February 2025
Arbitrage mutual funds are a special kind of equity fund that try to make money by taking advantage of price differences between the regular stock market and the futures market. These funds generate profit from the small price gaps that exist between these two markets. Fund managers keep their eyes on the difference so that they can take advantage of it. The funds may invest in debt securities or equities when there is no arbitrage opportunities are available.
The taxation of both arbitrage fund and equity funds are done same way. If you keep your investment for more than a year, you will need to pay a 12.5% tax on the profit, called long-term capital gains (LTCG) tax. However, if you keep the investment for less than a year, it is subject to a short-term capital gains tax of 20%.
The uncertainties and fluctuations are important factors for this fund as it gives opportunities for arbitrage. As we know well these funds gets benefit from the price differences, so when the market is fluctuating more better opportunity rises for them to make profits. It is a better option for those investors who want to avoid making any predictions regarding future interest rate changes as this funds are not affected by the changes in interest rate.
Sometimes, there is lesser chance to make profits through arbitrage. This happens when the market moves in a single direction without making any price changes. At such times, it becomes tough for arbitrage fund to find good opportunities. A market with more ups and downs is perfect for this fund to make profits.
Best Arbitrage Mutual Funds to Invest in February 2025
For short-term investment for investors, the below-mentioned arbitrage funds are greatly suggested:
1. Kotak Equity Arbitrage Fund
2. Nippon India Arbitrage Fund
These funds have delivered consistent returns and can be expected to keep doing so.
Methodology for Choosing the Best Funds
For choosing the best arbitrage mutual funds, some parameters are taken into consideration:
1. Mean Rolling Returns: Fund returns over the last three years are calculated on a daily basis. This helps one to understand the general performance of the fund better.
2. Consistency: The level of consistency of the returns of the fund is determined by applying the Hurst Exponent (H). It shows that high H implies that the fund experiences low volatility and low H implies that the fund returns are unpredictable.
3. Downside Risk: This measure considers the risk of negative returns. A fund with very less downside risk is desirable, as it’ll less likely to loose money.
4. Outperformance:
- Equity Portion: The performance of the fund is compared to the expected return of the market through Jensen’s Alpha. A high value of Jensen’s Alpha means that the fund has outperformed the market.
- Debt Portion: The fund return is compared with its benchmark return. The difference is utilized to assess how well the debt investments of the fund have performed.
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- Average returns generated by the MF Scheme = [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index – Risk Free Rate}
5. Asset Size: The fund should have a minimum asset size of Rs.50 crore to be considered.
Through these analyses, investors can make choices of which arbitrage fund to invest in.
Arbitrage mutual funds prove to be an excellent choice for investors seeking low-risk short-term investments, mainly during low market conditions. These funds mentioned above are some of the best in February 2025, which provide stability along with stable returns. Investors must monitor market situations to get the maximum return on these funds.
