Here are six smart things to know about arbitrage funds:
1 Arbitrage funds are mutual fund schemes that invest in the equity markets to benefit from mispricing situations in the stock, cash and derivative markets.
2 These funds buy stocks in the spot market and sell in the derivative market to earn from the difference in pricing.
3 The returns from these funds typically reflect the current short-term interest rates in the market.
4The returns from arbitrage funds mainly depend on the availability of arbitrage opportunities.
5 During periods of market volatility, greater price anomalies are more likely and these funds tend to generate good returns.
6 Arbitrage funds attract a short-term capital gain tax of 10% and are tax-free if held for a period of more than one year.
Content courtesy: Centre for Investment Education and Learning (CIEL)
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