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Why Arbitrage Funds Are Becoming Investors’ Go To Choice Funds?

By Pamela Jul11,2024
Why Arbitrage Funds Are Becoming Investors' Go To Choice Funds?

Arbitrage funds have emerged as a favored investment choice among investors in recent years. Having a unique ability to generate stable returns while minimizing risk, arbitrage mutual funds are becoming their go-to-choice funds, and for good reason. In this article,  we’re going to understand the factors that are contributing to making these funds a preferred choice of investors.

What Are ArbitrageFunds?

Arbitrage funds are investment vehicles that seek to exploit price differences in different markets. In simple terms, arbitrage funds involve the buying and selling of an asset, or forms of the same asset, in different markets simultaneously.

This way, these hybrid mutual funds can capitalize on the temporary price difference between the two markets. Arbitrage has an applauding ability to generate stable returns with low risk. This has proved to be highly appealing to the growing investors in today’s market environment.

However, it is important to conduct your research and consider your financial goals and risk levels to invest in the best arbitrage mutual funds.

Factors Increasing Popularity of Arbitrage Funds

Arbitrage funds have been gaining popularity among investors clearly because of its benefits. These include:

1.     Lower Risk

Arbitrage funds use strategies that involve simultaneous buying and selling of assets to exploit price differentials. The risk is significantly reduced in this case when compared to traditional equity funds. By taking advantage of price inefficiencies rather than relying on market direction, arbitrage funds can perform well in both rising and falling markets.

2.     Stable Returns

The returns from arbitrage funds are generally more stable and predictable. This is an appealing characteristic to have for a mutual fund. This is mainly because they are based on the price spread between two positions rather than a single asset at a fixed market.

3.     Diversification

Arbitrage funds invest in a wide range of securities and employ various arbitrage strategies. This characteristic helps diversify an investment portfolio. Additionally, it has a low correlation with traditional equity and bond markets. This reduces overall risk and potentially enhances returns during periods of market stress.

4.     Liquidity and Professional Management

Most arbitrage funds offer high liquidity. This means that investors are able to redeem their units with minimal delay. This flexibility is very crucial for investors who might need to access their funds quickly. Additionally, these funds are managed by professional fund managers with expertise in exploiting market inefficiencies which gives the investors a sense of security.

Apart from all the mentioned features, arbitrage funds also adapt to various market conditions, making them versatile options. The fact that they are managed by experts is also an assuring factor. Therefore, one can say that these features make arbitrage funds a compelling choice for investors.

5.     Tax Efficiency

Another reason for its popularity comes from its feature of being tax efficient. They are treated in a similar manner as equity funds. Long-term capital gains are taxed at 10% while short-term capital gains are taxed at 15% if sold within a year.


Arbitrage funds are designed for investors seeking stable and relatively safe returns which is something it provides. The growing popularity of arbitrage funds can thus be attributed to its benefits. It has a low-risk profile, provides stable returns, is tax efficient, and has the ability to diversify and hedge against market volatility.

These characteristics make these arbitrage funds a compelling go-to-choice for investors looking for a balanced investment strategy that combines safety with steady performance.

By Pamela

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