According to reports from Mint, arbitrage funds are classified as low-risk hybrid mutual funds that generate profits by exploiting price differences between cash and futures markets. These funds typically buy shares in the cash market while simultaneously selling them in the futures market, creating a hedged position that locks in profits regardless of market direction. As reported by Mint, arbitrage funds must invest at least 65% of their funds in equities according to Securities and Exchange Board of India (Sebi) guidelines, while also deploying money in debt and money market instruments. The latest data shows Invesco India Arbitrage Fund has ₹26,370 crores worth of assets under management as of March 31, 2026, with a current NAV of ₹36.36 as of April 17, 2026.
As reported by Mint, gains from units sold within 12 months are taxed at 20% as short-term capital gains (STCG), while profits held for over 12 months are taxed at 12.5% as long-term capital gains (LTCG). These taxes apply on gains exceeding ₹1.25 lakh per financial year. According to Mint, arbitrage funds provide reasonable returns and are suitable for short-to-medium term investment goals, with the best investment horizon being 3-6 months. The Invesco India Arbitrage Fund has delivered average annual returns of 6.96% since inception, with recent performance showing 1-year returns of 6.71% and 5-year returns of 6.86%.
According to Mint, arbitrage funds have virtually no price risk as equity exposure is wholly hedged, but investors must understand there is no guarantee of gains similar to other market-linked instruments. As reported by Mutual Funds Sahi Hai, these funds may not perform well in bearish markets, as futures often trade at a discount to cash prices. The debt portion of these funds can still be exposed to credit risk, though the equity portion remains hedged. The latest data shows Invesco India Arbitrage Fund has a standard deviation of 0.35, indicating moderate volatility compared to other arbitrage funds in the category.
As reported by Mint, it is better to invest in arbitrage funds through lump sum amounts rather than systematic investment plans (SIP). Investors must read the scheme offer document carefully to understand investment objectives, strategies, risks, asset allocation, and fees. The funds invest in a combination of equity and debt instruments, making it important for individuals to understand the asset allocation before investing. According to recent performance data, Invesco India Arbitrage Fund has an expense ratio of 0.4% and maintains a Sharpe ratio of 4.14, indicating better risk-adjusted performance compared to category averages. The fund's asset allocation shows 33.07% in debt and 0.21% in equity as of March 31, 2026.
