Mirae Asset Arbitrage Fund: A good fund to capture risk free profit

What are Arbitrage funds?

Arbitrage Funds are equity-oriented hybrid funds that leverage arbitrage opportunities, like differences in the pricing of shares in two different exchanges, or in the prices at the spots and futures market etc. Since there is a simultaneous buy and sell, they do not carry the volatility of the equity asset class and generate a stable debt-like return.

These funds aim to generate profits regardless of market direction by simultaneously buying low and selling high, making money from the price difference between the two.

Suppose a stock XYZ is trading at Rs. 100 in the spot market, while its corresponding futures contract is priced at Rs. 102. In this scenario, an arbitrage fund manager would buy the stock in the spot market at Rs. 100 and simultaneously sell the futures contract at Rs. 102. The fund manager locks in a profit of Rs. 2 (102 - 100) per share, irrespective of the future movement of the stock price.

Why should you invest in an Arbitrage fund?

• Lower risk: Arbitrage funds carry relatively lower risk than pure equity investments. The aim of arbitrage funds is to generate consistent returns regardless of different market directions, thereby providing stability to the investment portfolio.


• Tax efficiency: Arbitrage funds can provide tax-efficient returns due to the favorable tax treatment of arbitrage transactions. The gains from these funds are typically taxed as short-term capital gains, attracting lower tax rates than long-term capital gains. Also, these funds are a superior choice against the debt funds.


• Hedge against volatility: Arbitrage funds typically hedge against market volatility. They have the potential to generate steady returns even in uncertain market conditions, offering stability to the investment portfolio.


• Better cash management: Arbitrage funds may be a better option to park your ideal funds rather than in your savings account as these investments may offer better returns than savings accounts and are relatively safe even in fluctuating market conditions.

Things to consider before investing in an Arbitrage fund

• Before investing in an arbitrage fund, consider your risk appetite and investment horizon as well as the reason for your investment.


• The tracking error and investment horizon of the fund you are choosing should be an important consideration.


• Look at the portfolio allocation in debt instruments and debt quants to reveal if there is any credit or duration risk to the fund.


• Looking at the float in equity and the depth of the futures side of the portfolio will help identify the risk.


• Keep track of the exit load on the arbitrage fund you choose to help optimize the redemption/switch from it.

In this article, we will take a close look at the Mirae Asset Arbitrage Fund

Mirae Asset Arbitrage Fund Regular Plan Growth

Mirae Asset Arbitrage Fund Regular Growth is an open-ended scheme with an objective of generating capital appreciation and income by leveraging arbitrage opportunities in the cash and derivatives market of the equity markets. The fund also aims to earn returns by investing in arbitrage opportunities available in the derivative segments and also by investing the balance amount in debt as well as money market instruments. However, it should be noted that the investment objectives of mutual funds may or may not be realized and depends on market dynamics.

The scheme was launched on 5^th June 2020, and has an AUM of Rs 676.35 Cr as on 30^th November 2023. The NAV of the Mirae Asset arbitrage fund (Regular growth option) is at Rs 11.745 as on 1^st January 2024 and for the Direct plan growth option Rs 12.05.

The growth option of the scheme has an expense ratio of 0.91% (as on 30^th November 2023) and an exit load of 0.25% if redeemed or switched within 15 days of allotment. After 15 days there is no exit load.

The equity portion of the fund has been managed by Mr. Jignesh Rao and Mr. Jigar Sethia since 19^th June 2020, while the debt portion is managed by Mr. Abhishek Iyer who took over on 16^th Jan 2023.

Lumpsum growth of Rs 10,000 in a year -

The chart below shows the way your investment would have grown as on 1^st January 2024. If you had invested Rs 10,000 lumpsum in the Mirae Asset Arbitrage Fund on 1^st January 2023, your investments would have grown to Rs 10,710. The 1-year CAGR returns of the fund (regular growth) is 7.17%. The fund has beaten the 1-year category average return which is 7.05%.

Investment Strategies adopted by the Mirae Asset Arbitrage Fund -

The fund invests in a mix of market caps for its equity investment. The chart below shows the investment portfolio in different market caps.

The sector allocation of the Mirae Asset Arbitrage Fund is shown in the following pie chart.

Who should you invest in Mirae Asset Arbitrage Fund -

• The fund is suitable for you if you want higher returns (compared to savings banks) on your short-term funds while enjoying some tax advantage.


• Investment in this fund is recommended if you want very low risk for your investments.


• If you belong to the higher tax bracket and want to take advantage of equity taxation.


• The investment is suitable for you if you are looking for tactical investment for more than 6 months, meaning if you would want to take out the money after 6-months. Arbitrage funds may not be suitable for just a few days or weeks.


• Arbitrage funds can be suitable for deploying your lumpsum funds in a low volatility fund for STP to higher volatility funds (e.g. equity funds). Be mindful of exit loads when planning your STP.

You should consult with your financial advisor or mutual fund distributor if Mirae Asset Arbitrage Fund is suitable for you.