Arbitrage mutual funds received a record Rs. 12,378 crores in April 2026, surpassing individual hybrid and equity schemes. The category has a total AUM of Rs. 2.70 lakh crores as of 30th April 2026. In this article, we will explore what arbitrage mutual funds are, how they work, their returns, and taxation.
Arbitrage funds take advantage of price differences in the same security across two markets. They buy at a lower price and sell at a higher price, locking in the spread as profit. For example, if shares of Company A are trading at Rs. 100 in the cash market and Rs. 105 in the futures market, an arbitrage fund can buy at Rs. 100 and sell at Rs. 105, making a profit of Rs. 5 per share.
The returns delivered by arbitrage funds are as follows:
- 1-year: 5.60%
- 3-years: 6.65%
- 5-years: 5.74%
Arbitrage funds are tax-efficient, as they are treated as equity funds for taxation purposes. The taxation is as follows:
- Short-term capital gains tax: 20%
- Long-term capital gains tax: 12.5% (after exemption of ₹1.25 lakhs)
Arbitrage funds are suitable for short-term investments and are ideal for investors who don't want to take too much risk and are content with returns in the 5–7% p.a. range. They can also be considered for parking emergency funds or for systematic transfer plans into an equity fund.
