How will Parag Parikh Arbitrage Fund make money for investors?
The New Fund Offer of Parag Parikh Arbitrage Fund is open now and will remain available till October 27, 2023. The allotment date of the fund is November 2 and the reopening date is November 3, 2023. As per information on the AMC’s website, Parag Parikh Arbitrage Fund (PPAF) is an open-ended scheme investing in arbitrage opportunities.
The AMC says arbitrage mutual funds usually choose to undertake a type of arbitrage known as “Cash Futures Arbitrage”. Cash Futures Arbitrage involves the simultaneous purchase and sale of an equivalent quantity of the same security in the cash/spot market and Futures markets. This is done with the aim of profiting from the price differences between the two markets.
According to the AMC, spot prices, the ones which are continuously flashed on the stock price ticker on TV, are usually lower than the ones prevailing in the Futures market as there may be many Futures contracts for the same stock with each one expiring on a specific date. The AMC has further explained this on its website with a sample illustration:
“Parag Parikh Arbitrage Fund (PPAF) aims to replicate this process by undertaking simultaneous buy and sell transactions in spot and futures markets whenever feasible, thereby generating relatively ‘low risk’ pre-tax profit for its unitholders,” the AMC says.
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Investors should note that the above is just an illustration and it should not be seen as a “promise/minimum returns/ safeguard of capital”.
PPAF may be suitable for investors interested in generating income by predominantly investing in arbitrage opportunities in the cash and derivatives segment of the equity market.
The AMC says that investors should consult
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