It is essential to examine an investment choice from many perspectives while making a decision. A number of analytical and subjective criteria might assist you in determining the optimal option. It's also a good idea to maintain your financial objectives, risk tolerance, and investing horizon in consideration. When it comes to investing in a fund or strategy, the first thing that springs to mind is interest rates or returns, regardless of the time horizon, whether short, medium or long.
Arbitrage Mutual Funds can be the best bet for risk-averse investors looking for safe returns, as they acquire shares in the cash or current market and sell them in derivatives markets. The return you make is the difference between the holding share price and the selling price, as a result, there is no market risk of generating tax-efficient returns. So if you are an investor with a low-risk appetite and don't have exposure to a volatile market, then here are the 4 best arbitrage funds to invest for a term of 1 to 3 years based on your goals.
BNP Paribas Arbitrage Fund
This is a hybrid fund launched by BNP Paribas Mutual Fund. The fund's expense ratio is 0.31 per cent, which is comparable to the expense ratios charged by most other Arbitrage funds. The fund currently has a -0.04 per cent stock allocation, a 24 per cent debt allocation, and a 76.4 per cent cash allocation. BNP Paribas Arbitrage Fund Direct has a 1-year growth rate of 4.29 per cent. It has returned an average of 6.30 per cent each year since its inception. The financial, metals, healthcare, energy, and technology sectors make up the majority of the fund's equity holdings. BNP Paribas Overnight Fund - Direct Plan's top five holdings include UPL Ltd., Tata Steel Ltd., Bharti Airtel Ltd., and Tata Power Co. Ltd.. The fund presently has Rs 757 crore as assets under management (AUM) and a NAV of Rs 13.14 as of June 18, 2021. One can start SIP by Rs 300 and this low-risk fund has an exit load of 0.25% if withdrawn within 1 year.
Nippon India Arbitrage Fund
The fund presently has Rs 11,792 crore in assets under management (AUM) and a NAV of 22.09 as of June 18, 2021. The expense ratio of the fund is 0.34 per cent. The fund now has a 4.8 per cent equity allocation, a 22.9 per cent debt allocation, and a 72.3 per cent cash allocation. The 1-year returns for the Nippon India Arbitrage Fund Direct-Growth are 4.25 per cent. It has had an average yearly return of 7.32 per cent since its inception. The financial, metals, services, healthcare, and energy sectors make up the bulk of the fund's equity holdings. Reliance Liquidity Fund - Direct Plan, Reserve Bank of India, GOI, Tata Steel Ltd., and Reliance Liquidity Fund - Treasury Plan - Direct Plan are the fund's top five holdings. One can start SIP by Rs 100 and this low-risk fund has an exit load of 0.25% if withdrawn within 1 year.
Edelweiss Arbitrage Fund
As of June 18, 2021, the fund has Rs 5,503 crore in assets under management (AUM) and a NAV of 15.94. The fund's expense ratio is 0.34 per cent. The fund presently has an equity allocation of -0.4 per cent, a debt allocation of 32.2 per cent, and a cash allocation of 68.2 per cent. The 1-year returns for Edelweiss Arbitrage Fund Direct-Growth are 4.27 per cent. It has returned an average of 6.91 per cent per year since its inception. The financial, metals, services, energy, and healthcare sectors make up the majority of the fund's equity holdings. Reserve Bank of India, Adani Ports and Special Economic Zone Ltd., Bharti Airtel Ltd., Vedanta Ltd., and Reliance Industries Ltd. are the fund's top five holdings. SIP can be started in this fund with Rs 500 and an exit load will be charged 0.1% if redeemed within 1 year.
Best Arbitrage Mutual Fund Returns
|Funds||1 year returns||3 year returns||Value Research Rating|
|BNP Paribas Arbitrage Fund||4.29%||5.96%||5 star|
|Nippon India Arbitrage Fund||4.25%||5.98%||5 star|
|Edelweiss Arbitrage Fund||4.27%||6.03%||5 star|
|Source: Value Research|
Should you invest?
In the near term, arbitrage mutual funds may be quite turbulent. You can minimize this by investing for at least a year to ensure high returns. Because the returns would be categorised as Long Term Capital Gains, which are tax-free up to a ceiling of Rs. 1 lakh, you will receive higher tax-efficient returns than bank fixed deposits. Arbitrage Funds are not subject to the risks as traditional equity investments have. This is due to the fact that they purchase and sell stocks simultaneously. As a result, there is no possibility of stock price fluctuation impacting returns. As we always analyze the past returns for our readers for their better understanding and determination, Arbitrage Mutual Funds have generated an average 3-year SIP returns of 4.6% and 5-year SIP returns of 5.09%, according to Value Research.
If we compare these returns, then it is much higher than the returns of bank fixed deposits as of now. Finally, we suggest that these funds are appropriate for investors who want to gain exposure to the equity market but are concerned about the risk involved. When there is constant volatility in the market, arbitrage funds are a secure choice for risk-averse investors. Arbitrage funds are a good option if you want to generate moderate returns from an investment that has a reasonable mix of debt and equity in a turbulent market.
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