What are Arbitrage Funds?
Arbitrage Funds are equity-oriented hybrid funds that take advantage of market arbitrage opportunities. An arbitrage fund’s fund manager buys and sells shares at the same time, earning the difference between the selling and buying prices. This is distinct from any other type of investment in which you buy an asset and wait for its value to increase before selling it. The fund manager of an arbitrage fund invests in shares only when he sees a clear opportunity to gain returns. If no arbitrage possibilities exist, the fund will invest in short-term money market instruments and debt securities. The main thing to remember here is that the price difference is usually insignificant. As a result, the fund manager must execute multiple deals in a single day in order to generate a reasonable profit. Pricing mismatches between two exchanges, differing pricing in the spot and futures markets, and so on are examples.
Table of Content
- How do Arbitrage Mutual Funds work?
- Features of Arbitrage Mutual Funds
- Who should Invest in Arbitrage Mutual Funds?
- Factors to consider before Investing in Arbitrage Mutual Funds in India
- Advantages of Arbitrage Funds
- Disadvantages of Arbitrage Funds