Arbitrage funds trump short-term debt, draw all-time high inflows
investors and family offices are pouring money into mutual funds' arbitrage schemes as better tax efficiency, higher returns than short-term debt funds, and no credit risk are boosting their popularity. Investors are increasingly using this category to park idle money typically for their short-term needs which have historically gone into liquid and money market funds — debt schemes that bet on high-quality short-term bonds.
Data from Franklin Templeton show arbitrage schemes, whose assets under management have reached an all-time high of ₹1.64 lakh crore, saw the highest inflows across fund categories in the last 12 months to the tune of ₹67,500 crore.
Arbitrage funds aim to benefit from the price anomalies between a stock and its futures contracts by simultaneously buying and selling both of them. The strategy is considered low-risk because it does not bet on the direction of the market.
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«Market wide open interest (in derivatives) increased to over ₹3.4 lakh crore from less than ₹2 lakh core during this period,» said Anand Gupta, fund manager-equity at Nippon India Mutual Fund. Higher trader interest and increasing volumes in stock markets have led to higher demand for money leading to wider spreads between stock and stock futures, said fund managers.
Investors looking for twin engines of quality and growth.
«The buoyant equity markets in the last 9-12 months have led to a rise in futures premium,» said
