According to Mint reports, arbitrage funds have emerged as the best-performing hybrid mutual fund category in 2026, generating a 3.35% year-to-date return as of July 29, 2026. The category has narrowly outpaced Income Plus Arbitrage Funds, which returned 3.28%, while remaining hybrid categories have lagged considerably. Conservative Hybrid Funds gained 1.55%, and returns from Multi Asset Allocation and Equity Savings Funds remained below 1.5%. Aggressive Hybrid Funds and Dynamic Asset Allocation Funds have slipped into negative territory this year.
As reported by Mint, arbitrage funds are hybrid mutual fund schemes that seek to generate income by simultaneously buying securities in the cash market and selling equivalent securities in the derivatives market to benefit from price differentials between the two markets. Since equity positions are largely hedged, these funds are generally less sensitive to stock market movements than conventional equity funds. Under SEBI's mutual fund categorisation framework, arbitrage funds are classified as hybrid schemes and must invest a minimum of 65% of total assets in equity and equity-related instruments, making them treated as equity-oriented funds for taxation purposes.
According to Value Research data cited by Mint, Quant Arbitrage Fund delivered the highest return at 7.57% over the past one year, followed by WhiteOak Capital Arbitrage Fund at 7.10% and Motilal Oswal Arbitrage Fund at 7.06%. These top-performing funds demonstrate that while arbitrage funds follow similar investment approaches, returns vary across schemes based on factors such as arbitrage opportunity availability, execution, and portfolio management skills.
As reported by Value Research data, Tata Arbitrage Fund leads with an annualised return of 7.64% over three years, closely followed by Kotak Arbitrage Fund at 7.63% and Invesco India Arbitrage Fund at 7.61%. The rankings indicate that while arbitrage funds follow similar investment strategies, there are significant differences in returns across schemes over different time periods. Investors should evaluate a scheme's investment objective, portfolio characteristics, risk factors, and track record before making investment decisions.
