Arbitrage Funds are hybrid mutual funds designed to earn returns from price differences between the cash and derivatives markets. Unlike traditional equity funds, they don’t rely on market direction but capitalize on pricing inefficiencies, making them a low-risk investment option for short- to medium-term investors.

1. Market-Neutral Strategy: Gains come from arbitrage opportunities, not market trends.
2. Low Volatility: Hedged positions reduce exposure to broad market swings.
3. Professional Management: Fund managers actively execute arbitrage trades and allocate idle funds to debt instruments.
4. Liquidity: Open-ended structure allows easy buy/sell of units.
5. Tax Advantages: Often classified as equity funds, offering favorable taxation on long-term gains.

1. Low-Risk Market Exposure: Ideal for conservative investors seeking stable returns.
2. Short-to-Medium Term Parking: Better than savings accounts or fixed deposits.
3. Equity-Oriented Tax Efficiency: Long-term gains taxed more favorably.
4. Flexible Access: Funds can be redeemed with ease while earning moderate returns.

• Steady, risk-adjusted returns
• Reduced market sensitivity
• Equity tax treatment for long-term holdings
• Professional management and diversification

1. Limited upside in stable markets
2. Returns dependent on market volatility
3. Not suitable for aggressive long-term growth
4. Some exposure to debt instruments carries minor risk

1. STCG (<12 months): 15% plus cess
2. LTCG (>12 months): 10% on gains above ₹1 lakh
3. Dividends: Taxed as per income slab; TDS may apply