Bajaj Finserv Arbitrage Fund: Bajaj Finserv Arbitrage Fund, a product of Bajaj Finserv Mutual Fund, is now available for subscriptions as of Friday, September 8. The availability of the new fund offering (NFO) will last until September 13, 2023. The primary objective of this open-ended hybrid scheme is to generate returns by exploiting arbitrage opportunities in the cash and derivatives segments of the equity markets.
The fund will also invest in debt and money market instruments, providing a diversified approach to potential returns. “It is important to note that although the scheme intends to generate substantial returns, there is no assurance that the investment objective will be met,” the fund house stated.
This newly introduced fund offers investors the opportunity to profit from arbitrage strategies while maintaining stability through investments in debt and money market instruments, according to the statement.
Bajaj Finserv Arbitrage Fund: Load framework
While there is no entry load for the NFO, there is an exit load of 0.25 percent of the pertinent nett asset value (NAV) if the investment is redeemed or converted within 15 days of the date of allotment. If redeemed or exchanged after 15 days from the date of allotment, the value is zero. The scheme will not impose an exit burden if the portfolio rebalancing timelines specified in the SEBI circular dated 30 March 2022 are not met.
The minimum subscription amount permitted for investment in the NFO is Rs 500 and in multiples of Re. 1. For investors who wish to automate their investments, Systematic Investment Plans (SIPs) are also available.
Regarding arbitrage funds
Mutual funds specialising in arbitrage employ a distinct investment strategy that capitalises on price disparities between various market segments. The two primary components of these funds are typically the equity book and the debt book.
Bajaj Finserv Arbitrage Fund: Recent cash inflows
In recent months, arbitrage funds have been in the spotlight, experiencing a notable increase in investor inflows. In July alone, Rs 10,074 crore was deposited into these funds, representing a significant increase in interest compared to other hybrid mutual fund schemes.
The diminishing allure of debt funds is a significant factor in the growing popularity of arbitrage funds. The loss of the indexation benefit on Long-Term Capital Gains (LTCG) has diminished the investor appeal of debt funds.
For investments made on or after April 1, 2023, the indexation benefit on LTCG is no longer available under the new debt fund taxation rules. The gains are instead added to the investor’s taxable income and taxed according to their tax bracket. As a result, investors are seeking alternative investment opportunities, and many have discovered arbitrage funds to be the solution. This is due to the fact that arbitrage funds predominantly invest in equities. Because of this, they are taxed as equity funds, and their tax rate is significantly lower than the ordinary income tax rate imposed on other categories of funds.
Should one make an investment?
Arbitrage funds are ideal for investors seeking tax-efficient parking alternatives. Typically, the recommended investment horizon for these funds is at least three months.
Recent trends indicate that arbitrage funds offer a favourable risk-reward profile compared to other available parking solutions. The combination of their distinctive investment strategy and current market conditions has increased their popularity.”