Arbitrage Fund on WebNotes

Parag Parikh Arbitrage Fund

Sat, 16 May 2026 00:00:00 +0000

The Parag Parikh Arbitrage Fund is an open-ended arbitrage scheme of PPFAS Mutual Fund , launched on 27 October 2023 by PPFAS Asset Management Private Limited following a new fund offer that ran from 23 October 2023 to 27 October 2023. It is the fifth open-ended scheme in the PPFAS Mutual Fund product line, after the flagship Parag Parikh Flexi Cap Fund (24 May 2013), the Parag Parikh Liquid Fund (9 May 2018), the Parag Parikh ELSS Tax Saver Fund (4 July 2019), and the Parag Parikh Conservative Hybrid Fund (28 May 2021). The scheme is benchmarked to the Nifty 50 Arbitrage Total Return Index.

Arbitrage fund vs liquid fund for short-term parking

Tue, 12 May 2026 00:00:00 +0000

Arbitrage funds and liquid funds are both used for short-to-medium term cash parking in India, but they differ in investment strategy, risk profile, liquidity, and above all in tax treatment. The tax difference is the main reason arbitrage funds are chosen over liquid funds by investors in the higher income-tax brackets for holding periods of one year or more.

The decisive point: an arbitrage fund maintains 65 per cent or more equity exposure, so it is taxed as an equity-oriented fund (12.5 per cent LTCG above the Rs 1.25 lakh annual exemption under Section 112A ), while a liquid fund is taxed as a specified mutual fund at slab rate after the Finance Act 2023 Section 50AA change. For a high-bracket investor the differential favours the arbitrage fund for short-term parking even though both carry similar low-volatility profiles.

Arbitrage mutual fund

Tue, 12 May 2026 00:00:00 +0000

An arbitrage mutual fund in India is an open-ended hybrid scheme that generates returns primarily by exploiting the price difference between the cash (spot) market and the futures market for the same equity security. The strategy involves simultaneously buying a stock in the cash market and selling an equivalent futures contract on the same stock at a higher price (the futures premium). The spread between the cash price and the futures price, captured at the time of trade, represents a near risk-free return that is crystallised when the futures contract expires and the prices converge.

Taxation of arbitrage funds (equity-oriented)

Tue, 12 May 2026 00:00:00 +0000

Taxation of arbitrage funds in India mirrors the taxation of equity-oriented mutual funds because SEBI mandates that arbitrage funds maintain at least 65% of their assets in equity (through simultaneous long cash and short futures positions), placing them within the equity-oriented classification for income-tax purposes. Capital gains on arbitrage fund units are taxed under Section 111A (STCG at 20%, effective 23 July 2024) if held for 12 months or less, or under Section 112A (LTCG at 12.5% above Rs 1,25,000) if held for more than 12 months. This tax treatment makes arbitrage funds materially more efficient than liquid funds or ultra-short-duration debt funds for investors in higher income-tax brackets, especially for parking short-term surpluses for periods of three months or more.