Investors are once again showing interest in arbitrage category funds due to the rapid volatility in the market. Investors can transfer their short-term surplus income to arbitrage funds. It has minimal risk and capital increases with advantages in regular income and tax. In a fully secured equity portfolio, there are more profit opportunities and somehow it keeps away directional equity calls.
UTI Arbitrage Fund is one of the first of these funds, which was launched in 2006 and now has a 14-year track record spanning a wide range of market cycles. The fund has performed well so far with monthly returns in its regular and direct plans. Based on the compounded annual growth, the fund has given a return of 4.61 per cent on the growth option regular plan and 5.17 per cent on the growth option direct plan. This is on a yearly basis (as of October 5, 2020).
Since the fund is equity-oriented, the tax also has some advantages in terms of capital gains tax and dividend distribution compared to other investment opportunities. This fund has a very good track record of monthly dividend distribution. Investors can fully plan their investments through regular income as a dividend. Apart from this, the profit on the NAV gets added to your returns.
At present, the market environment is quite risky due to debt-related issues and market fluctuations. In such a situation, arbitrage funds are a relatively safe investment measure to keep their savings or profits for a short period. Fully secured equity portfolios eliminate investor concerns and provide good profit opportunities. On DebtSide the fund manager focuses on good debt instruments (eg AAA, A1 Plus), which have an average maturity period of 205 days.
A UTI arbitrage fund can be a good investment option given the fund’s track record. It is also to be noted that the fund has increased in size considerably. Its AUM in January 2019 was Rs 1319 crore, which has reached Rs 3112 crore by October 5, 2020.