The Arbitrage Blueprint

Are you looking for a way to grow your idle funds while avoiding the limitations of traditional Savings Instrument?
If the answer is YES, we have an investment option that will spark your curiosity.
Discover Arbitrage Funds and save up to 33% more in taxes with minimal risk.

Let’s look at how we can do that with an example:

Suppose you fall in the income bracket between ?30 - 50 Lakhs per annum and invest ? 25 Lakhs for 13 months in a Traditional Savings Instrument versus investing the same amount for the same duration in an Arbitrage Fund.

Source: Axis MF internal Research.
*Past performance may not be sustained in the future. For performance in SEBI prescribed format, refer to page no. 3.
# Please note that the tax rate for Traditional Savings Instrument is applicable for highest tax bracket. The Traditional savings instruments’ actual rates may differ. Further, while there is no exit load in such cases there may be penal Interest rates/TDS/other factors in some cases.

Considering similar returns across both, you gain ? 2.02 Lakhs. With Traditional Savings Instrument applicable tax slab of 30% along with Cess, your total return is ?1.39 Lakh (5.15% annual return on your invested amount).
But with Arbitrage Fund, you get the benefit of ? 1.25 Lakhs being exempted from the applicable tax slab of 12.5% and Cess, hence you are taxed for just the remaining ? 77,854, increasing your total returns to ?1.92 Lakhs, a 7.12% annual return, and saving ?53,169 in taxes.
Similarly, you can# save an additional ?58,486 in taxes if you fall in the income bracket of ?50 Lakhs - ? 1 Cr per annum and ?61,145 in taxes if you fall in the bracket of ?1 Cr - ?2 Cr per annum.

Now that we can see how Arbitrage helps us maximize with tax liabilities, let’s understand the concept of Arbitrage through examples:

Example 1: Buying Ice Creams in Two Markets
Suppose you buy an Ice Cream in Market A for ?50, and you realize that Market B is selling the same Ice Cream at ?70. So, you sell the Ice Cream in Market B at ?70. Hence, you pocket a profit of ?20.
This process of taking advantage of price difference between two markets is called arbitrage. Similarly, in the financial market this relates to simultaneously buying and selling any security such as stocks, currencies or commodities in its derivatives market segment (It is a place where people buy and sell contracts based on the future prices of things like stocks, commodities, or currencies) to make profits.
Now that we are familiar with Arbitrage & derivatives market, let’s look at another example more relevant to the market.
Example 2:
• Suppose you are tracking the stock price of a stock XYZ Ltd. In the cash market and the derivatives market.
• In the cash market (It is where people buy and sell things like stocks or bonds and pay for them right away commonly known as our stock market) the stock is trading at ?100 per share & you purchase at this price
Then you check the derivatives market (also called as futures), here the contract price on XYZ Ltd. is at ?105.
You take this opportunity & simultaneously as you purchase a stock of XYZ Ltd on cash market, you sell it on the derivatives market at ?105 and bag a profit of ?5 per stock.
This is how you take advantage of price difference & make a profit because you’ve locked in the price difference by simultaneous buying & selling.

So, what is an arbitrage fund?

It is a completely hedged equity-oriented fund that leverages arbitrage opportunities to exploit the pricing differential by simultaneously buying and selling an asset and earning profits.
Arbitrage fund is a hybrid scheme that invests in hedged equity and Debt instruments like bonds, bills, etc.

Why invest in an Arbitrage Fund?
1. Additional tax benefits that maximize your savings: As an equity-oriented fund, it enjoys a tax advantage over debt-oriented investment options and enables you to save up to 33% additionally in taxes with tax exemption benefit on gains up to ?1.25 Lakhs in a financial year.

2. Low Risk Fund Parking solution: Arbitrage fund acts as a great money parking solution over a short period of time with low-risk exposure as equity positions are completed hedged.

Why is this fund not for you?
While Arbitrage is a great fund to maximize on equity tax benefits coupled with low risk exposure and enhanced portfolio strategy of arbitrage, you need to understand if you can maximize the benefits of this fund before investing.
If you are an individual who:
1. Has an income greater than ?20 Lakhs per annum?
2. Is looking for a short-term opportunity to park your funds at low risk?
3. Wants to maximize on tax saving and liquidity?
If the answer to the questions above is a yes, Arbitrage Fund is a relevant fund for you to invest in.
Although, if the answer is no, don’t be disappointed as there are multiple alternatives for this fund for you. Some suggestions:
• If you are looking for a hybrid fund: Consider a Multi Asset Allocation Fund or Balanced Advantage fund
• If you are looking for a debt fund: Consider an Ultra Short-Term Fund or Short-Term Debt Fund

Let’s quickly look at what Axis Arbitrage Fund has to offer you:

Considering the past year, Axis Arbitrage Fund has a 1 Year CAGR % return of 8.25%, beating the Nifty 50 Arbitrage Index Benchmark which was at 7.49%**.
**Data as on 29 November 2024.

This shouldn’t be taken as an indication of the returns that maybe generated by the fund and the securities bought by the fund may or may not be held till their respective maturities. The calculation is based on the invested corpus of the debt portfolio.
Investment objective: To generate income through low volatility absolute return strategies that take advantage of opportunities in the cash and the derivative segments of the equity markets including the arbitrage opportunities available within the derivative segment, by using other derivative based strategies and by investing the balance in debt and money market instruments. There is no assurance that the investment objective of the Scheme will be achieved.
As it a hybrid fund, it’s composition is across Hedged Equity & Debt Instruments as below:

You can know in more detail about the fund here: /mutual-funds/hybrid-balance-funds/axis-arbitrage-fund/ea-dg/direct
Fund Managers for this fund:


Mutual fund investments are subject to market risks, read all scheme related documents carefully.