No negative return on this equity mutual fund category in short term, NFO launched, Arbitrage Yojana.
Mahindra Manulife Mutual Fund launches Arbitrage Yojana
You read the headline right, no catch there at all. I have seen this fund category earlier too, but there is not much conversation about this fund in India. I just bumped into this NFO of Mahindra Manulife Mutual Fund’s news scheme – Arbitrage Yojana. And got an excuse to share it with you about this product category.
Recently I had mentioned about Bharat Bond Fund, safer than other debt funds. Though I can’t draw a product category parallel with the Arbitrage Yojana, but there is an interesting similarity of onething- that is the safety quotient.
Do you want to know – How to invest in Arbitrage Fund? Are Arbitrage Fund Good for individuals? Is it better than Liquid Fund for retail investors? Why to invest in arbitrage Funds and who can invest in Arbitrage Funds?
Arbitrage, an investment strategy that takes advantage of price difference of an asset in various scenarios. In this post, we will look at MahindraMMF’s Arbitrage Yojana which is an Equity Fund, it invests in equity and related market securities like other equity Mutual Fund. But, this category has a twist which is not discussed.
Let us discuss this category with help of Arbitrage Yojana NFO launched by Mahindra Manulife Mutual Fund. An Indian Arbitrage Fund, Arbitrage Yojana’s main focus is generating consistent returns from equity market through positioning trades to leverage the price difference between shares and derivative instruments, its focus is to locking-in profit, whether market goes down or up, this scheme category generates income in any market scenario. It uses four kinds of equity arbitrage opportunities – Exchange arbitrage, cash and carry Arbitrage, Basket of stock and corporate action driven arbitrage opportunity.
Like all other Equity Mutual Fund category, this mutual fund also follows an Index to compare its returns. For Arbitrage Funds, the Index is Nifty 50 Arbitrage Tri Index.
The focal point of the fund is hedging risk and generating consistent income. The strategy can be explained through the illustration below.
Exchange Arbitrage – The stock prices of same company can have a small difference in BSE and NSE platforms, in this case scheme, buy in one exchange and sell in another. These trades are often done in pre-set prices to maintain profit margin.
Cash And Carry Arbitrage – This strategy is implemented closer to contract expiry dates, (Ex Nifty has weekly derivatives contract expiry and stocks has monthly derivate expiry). In this strategy, Scheme place in trades to gain in from the price difference between Future contract and stock prices.
Basket of stock Arbitrage – For example, in this strategy, the scheme buys Nifty stocks in equal proportion as the nifty constituents of a certain value and sell the Nifty Futures for equivalent value.
Corporate Action Driven Abitrage – These are rare occurrences, when there is a visible and considerable difference in price available in case of big corporate action as mentioned in the illustration.
I have pulled out some information from the NFO document for easy illustration.
Mahindra Manulife Arbitrage Yojana
NFO Open date – 12th August 2020
NFO Closing date – 19th August 2020
Minimum application – Rs. 5000
Type – Open Ended Fund
Minimum SIP Amount – Rs. 500/-
To invest or to know more about the fund – Click here
Arbitrage Fund category –
Risk – Moderate
1 year average return 5.5 %
Who can look at buying Arbitrage return – One who is looking at steady high post tax return in short term, who needs to keep some fund which doesn’t get affected by market volatility, one who is looking for an all season fund. Whatever the equity market condition may be or interest cycle movement, Arbitrage Fund offers a cushion from uncertain market movements. This investment is ideal for parking cash for short term horizon, it earns better post-tax returns compared to fixed deposits, risk is much lower almost nil compared to equity funds for short term investing horizon of 1-2 years.
Besides stability, it’s tax treatment is what makes it more attractive, as it deals more than 65% Equity, it gets tax treatment of an equity Fund.
About Mahindra Manulife Mutual Fund
This is a joint venture of Mahindra & Mahindra Financial Services Limited and Manulife Investment Management (Singapore) Pte. Ltd. brings together Mahindra’s domestic market strength and track record of successfully building businesses focused on meeting customer needs and Manulife’s global wealth and asset management capabilities and richness of experience in servicing the needs of Asian consumers across developed and developing markets. They are aiming to offer wide variety of investment solutions pan-India, with focus on semi-urban areas.
Our take
This is indeed an interestingly safe and good mutual fund category, which offers fixed income like return and taxed like equity. The best part about this category allows investor to earn profit of 5-7% yearly, an average fund generates about 5.5 -6% return in 1 period horizon. Interestingly, for short term profit booking, within a year, it is taxed at 15%, and in long term the return is taxed at 10% above the 1 lakh equity profit threshold. While the debt funds are taxed as per income tax slab upto 3 years. (Can have a tax burden of 34%)
You may visit the Mahindra Manulife Mutual Fund website for checking out full offer document and fund details.
Among others in this category, there are Nippon India Arbitrage Fund, Edelweiss Arbitrage Fund, L&T Arbitrage Fund, Kotak Equity Arbitrage Fund, you can check Valueresearchonline or moneycontrol for more information and insights in this fund category
This post is for sharing information and insight, it should not be considered as recommendation to buy, and one should consult their financial advisor before taking action.
