Specialized funds: Trading funds can return to favor after facing large drawdowns

Mumbai: Low return 3-3.5% words arbitrage fund over a year has seen wealth the investors withdraw 20,048 crore from this portfolio in the last three months, by bank deposit or liquid fund Gain traction in bargains. But with a strong rebound increasing the spread between cash and futures arbitrage, the profits from arbitrage schemes are growing again.

Add to this the fact that they are entitled to their fair share taxincrease profit after tax, Fund management expect money to start coming back in the next 1-3 months into arbitrage funds.

Arbitrage funds benefit from the price difference between the cash and futures markets. They earn a spread by buying in the cash market and selling in the futures market. Financial planners point out that many investors who are dabbling in stocks use arbitrage funds as a vehicle to park, due to the lower tax rates compared to debt funds.

Specialized funds can be backed up after facing large withdrawals

The strong recovery in the market, with the Nifty 50 up 18% over the past three months, has led to increased activity in the F&O space, thus pushing up spreads.

Bhavesh Jain, fund manager at

Mutual fund.

Fund managers point out that the spread fell to as low as 3.8-4% in June, then increased to 5-5.25% in July and continued to rise to 5.75- 6.3% in August.

‘The rotation spread has increased sharply from June levels. Currently, the chance for a turnaround is up to 6.3% in many scenarios, said Deepak Gupta, fund manager at Invesco Mutual Fund.

After accounting for the costs, fund managers believe that investors can earn close to 5.5-5.7% from arbitrage funds, which is likely to trigger interest. return investors.

Tax efficiency is another attraction for arbitrage funds. As they enjoy the share tax, investors prefer it because of its higher tax efficiency. Investors who hold such a fund for a period of less than one year pay 15% capital gains tax. If they sell after a year, they only pay 10% tax on long-term capital gains, resulting in a higher after-tax profit. In a debt fund, if an HNI sells three years in advance, he has to pay short-term capital gains.

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