Arbitrage funds witness 45 per cent increase in inflows

The mutual fund industry received Rs. 19,570 crore in arbitrage funds in the first six months of FY18, stated data released by the Association of Mutual Funds in India (AMFI). This is a 45 per cent increase from Rs. 13,475 crore received during the same period last year.

The net inflows into the industry between April and September 2017 stood at Rs.76,065 crore. The arbitrage funds comprise 26 per cent of the overall equity inflows between the same period. The AMFI data also shows that the highest inflow of Rs. 6,304 crore in the arbitrage funds was witnessed in July.

Retail investors turn towards arbitrage funds for investments due to market volatility. It is an accepted belief that arbitrage funds perform well in volatile equity markets since they exploit the price difference between the spot market and derivatives. They carry lower risk as the fund manager buys in cash market and sells in futures thus creating a market neutral position. Hence it can be said that arbitrage opportunities exist mostly when the markets are unstable and uncertain. This category of funds may be favoured in the coming days since the market players anticipate more volatility. Arbitrage funds have offered over 7 per cent returns in the last five years.