Arbitrage Funds Opportunities

Arbitrage funds have taken a hit because of shrinking arbitrage opportunities. Is it time for you to exit them?

Many investors are wondering whether it is time to say good-bye to arbitrage funds as they ponder over their lack lusture performance in the last six months. Arbitrage funds became the hot favourite of investors after the last year's interim Budget when the finance minister hiked the long-term capital gains tax and the lock-in period on debt funds. Investors had started investing in arbitrage funds, which look to exploit the arbitrage opportunity between the cash and future markets.

As widely expected, the performance of these schemes has started suffering lately. They have underperformed other debt schemes in the last six months. Arbitrage funds have offered 4.14 per cent in the last six months as compared to the 4.22 per cent by liquid funds, 5.65 per cent by short-term funds and 8.33 per cent by income funds during the same period.

Many investment experts have been apprehensive that huge inflows into these schemes are likely to dry up arbitrage opportunities available in the market and this will adversely impact the performance of these schemes.