A quick look at why arbitrage funds could be smarter than liquid funds—especially if you’re watching your tax bill.
Wealth advisors believe arbitrage funds to be a good choice for cautious investors who want to benefit from a volatile market without taking on too much risk. But one should have at least a three to six-month investment horizon.
Arbitrage fund takes advantage of the mispricing between two markets thus hedging against risk. The returns generated by arbitrage funds are not too high but it is the risk-free nature. According to financial expert Rajiv Geol, investors looking for consistent and dependable wealth creation, may select this class of fund for investing.
Arbitrage funds scores over Debt and Equity Mutual funds by generating highest post-tax returns of 9% against 8.4% for debt and negative 4.1% for equity for 2011-2012 period, as per the latest analysis by CRISIL Research.