Arbitrage Funds for Long-term
Ninad Ramdasi / 04 Apr 2024/ Categories: DSIJ_Magazine_Web, DSIJMagazine_App, Letters to Editor, MF - Letter to Editor, Mutual Fund
Your story on Arbitrage Funds was insightful. But my concern is - Do Arbitrage funds provide sufficient returns to long-term mutual fund investors? - Bhavesh Jai
Your story on Arbitrage Funds was insightful. But my concern is - Do Arbitrage funds provide sufficient returns to long-term mutual fund investors? - Bhavesh Jai[EasyDNNnews:PaidContentStart]
Editor Responds : Thank you for writing to us. Arbitrage funds are a category of mutual funds that seek to capitalise on price differentials in securities across markets. They do this by simultaneously investing in equities and derivatives, taking advantage of short-term price inefficiencies. The primary focus of arbitrage funds is on risk management and capital preservation rather than aggressive growth.
One of the key benefits of arbitrage funds is their tax efficiency, especially in countries like India, where they are treated as equity funds for tax purposes if a certain threshold of equity holdings is met. This results in long-term capital gains being taxed at a lower rate compared to short-term gains or gains from Debt Funds.
These funds are more suitable for investors looking for stable returns over a shorter investment horizon and who prioritise tax efficiency and capital preservation over aggressive growth strategies.
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