The fund will invest at least 65% of its assets in equity and equity-related instruments, including equity derivatives. It can also invest in debt and money market instruments, depending on the availability of arbitrage opportunities and the scheme’s investment strategy.
How the arbitrage fund works
Arbitrage funds aim to benefit from temporary price differences between the cash and derivatives markets rather than taking a directional call on whether stock prices will rise or fall.
For instance, when a stock trades at different prices in the cash and futures markets, the fund can simultaneously buy in one market and sell in the other. The return comes from the convergence of these prices, subject to costs and market conditions.
When suitable arbitrage opportunities are limited, the scheme can deploy money in short-term debt and money market instruments.
Zerodha Arbitrage Fund: Key details
The scheme is an open-ended arbitrage fund, with a minimum investment of ₹5,000. It is positioned for investors looking to deploy surplus cash for relatively short periods, although returns are not guaranteed.
Arbitrage funds are categorised as equity-oriented schemes because they maintain the required equity exposure through stocks and equity derivatives. This can have tax implications that differ from those applicable to debt-oriented mutual funds.
Investors should also note that arbitrage opportunities are market-dependent. Returns can vary based on the availability of pricing differences, transaction costs, market volatility and other factors.
Zerodha Fund House is the asset management company for Zerodha Mutual Fund. The fund house offers passive investment products, including index funds, exchange-traded funds (ETFs) and fund-of-funds across asset classes.
The new scheme is intended to provide another option for investors seeking an arbitrage-based strategy, rather than a conventional equity fund that takes directional exposure to the stock market.
