Investing in mutual funds is a popular way of investing in India. Mutual funds offer a diversified portfolio of stocks, bonds, and other securities, which helps investors to minimize their risk. One of the popular types of mutual funds in India is Arbitrage Mutual Funds. In this article, we will discuss what Arbitrage Mutual Funds are, how they work, their benefits, and how to invest in them. 

What are Arbitrage Mutual Funds? 

Arbitrage Mutual Funds are a type of mutual fund that invests in the arbitrage opportunities available in the market. Arbitrage is the practice of taking advantage of the price difference between two or more markets. In the case of Arbitrage Mutual Funds, the fund manager buys stocks in the cash market and sells them in the futures market. The price difference between the two markets is the profit for the fund. 

How do Arbitrage Mutual Funds work? 

Arbitrage Mutual Funds work on the principle of buying low and selling high. The fund manager identifies the price difference between the cash and futures markets and buys the stock in the cash market. The fund manager then sells the same stock in the futures market at a higher price. The profit earned from the price difference is then distributed among the investors in the fund. 

Benefits of Investing in Arbitrage Mutual Funds 

1. Low Risk: Arbitrage Mutual Funds are considered low-risk investments as they invest in the arbitrage opportunities available in the market. The fund manager takes advantage of the price difference between the cash and futures market, which minimizes the risk for the investors. 

2. Tax Efficiency: Arbitrage Mutual Funds are tax-efficient investments as they are treated as equity funds for taxation purposes. The long-term capital gains tax on equity funds is 10%, which is lower than the tax on debt funds. 

3. Stable Returns: Arbitrage Mutual Funds offer stable returns as they invest in the arbitrage opportunities available in the market. The returns are not affected by market volatility, which makes them a good investment option for risk-averse investors. 

4. Liquidity: Arbitrage Mutual Funds offer high liquidity as they invest in the cash and futures market. The fund manager can easily buy and sell the stocks in the market, which makes it easy for investors to redeem their investments. 

How to Invest in Arbitrage Mutual Funds? 

Investing in Arbitrage Mutual Funds is easy and can be done online or offline. Here are the steps to invest in Arbitrage Mutual Funds: 

1. Choose a Fund: The first step is to choose a fund that suits your investment goals and risk appetite. You can choose from the various Arbitrage Mutual Funds available in the market. 

2. KYC: The next step is to complete your KYC (Know Your Customer) process. You can complete your KYC online or offline by submitting your documents to the fund house or a KYC registration agency. 

3. Fill out the Application Form: Once your KYC is completed, you need to fill out the application form for the fund you have chosen. You can fill out the application form online or offline. 

4. Make Payment: After filling out the application form, you need to make the payment for your investment. You can make the payment online or offline through net banking, debit card, or cheque. 

5. Confirmation: Once the payment is made, you will receive a confirmation of your investment. You can track your investment online or through the fund house's customer care. 

Examples of Arbitrage Mutual Funds in India 

1. Kotak Equity Arbitrage Fund: This fund invests in the arbitrage opportunities available in the market. The fund has given a return of 6.5% in the last year. 

2. ICICI Prudential Equity Arbitrage Fund: This fund invests in the cash and futures market to take advantage of the price difference. The fund has given a return of 6.3% in the last year. 

3. Aditya Birla Sun Life Equity Arbitrage Fund: This fund invests in the arbitrage opportunities available in the market. The fund has given a return of 6.2% in the last year. 

Conclusion 

Arbitrage Mutual Funds are a good investment option for risk-averse investors who want stable returns with low risk. The funds invest in the arbitrage opportunities available in the market, which minimizes the risk for the investors. The tax efficiency and high liquidity make them a popular investment option in India. Before investing in Arbitrage Mutual Funds, it is important to choose a fund that suits your investment goals and risk appetite.