Aditya Birla sun life arbitrage fund is a type of equity mutual fund that leverages differences in cash and derivatives or stock prices in the futures market to produce relatively risk-free returns. Arbitrage funds do not place any strategic bets on equity and only close the gap between cash and futures markets. Aditya Birla Sun Life Arbitrage Fund is a good option for those who want to invest in low-risk investments for short periods.
Basic understanding of Aditya Birla sun life arbitrage fund
The term ‘arbitrage’ is applied to buy and sell a security in two different markets, in which there is a profit from the difference in price.
An arbitrage fund is a kind of mutual fund that leverages cash and derivatives market price differentials to gain returns. Returns are based on asset volatility. Such funds are hybrid.
In simple terms, it is an arbitrage fund that has the return characteristics of a debt fund (low risk / low return), at the same time having the tax characteristics of an equity fund (it is employed as an equity fund that is better than having tax in the form of debt funds).
In recent times, the arbitrage fund has held its position because of the dividend distribution tax and the government imposed LTCG tax. I suggest you stick to liquid funds on arbitrage funds.
Aditya Birla sun life arbitrage fund is safe?
Arbitrage funds are safe and carry little risk. The fund managers here hedge against derivatives and reduce the risk of equity.
Things to consider as an investor while investing in Aditya Birla Sun Life Arbitrage Fund: –
- Investment risk
- How much return will you get?
- The total cost of the scheme
- Investment horizon
- What are your financial goals?
- Tax on gains
Aditya Birla Sun Life Arbitrage Fund Investment Suitability
Arbitrage funds invest in equities and derivatives and derive their returns by differentiating between a stock and its futures. You will assume to earn higher returns by investing in assets that you will get from a bank account.
Arbitrage funds sufficiently protect their equity investment, which means that their returns are not affected by the day-to-day fluctuations of the stock market. The risk of loss in these funds is low, but they do not guarantee returns or capital security.
Retail investors can avoid these funds altogether. We believe that liquid funds are a better option but have better liquidity, with somewhat similar risk-return payoffs.
Taxability of Aditya Birla Sun Life Arbitrage Fund
If the mutual fund unit is sold after one year from the date of investment, the profit up to Rs 1 lakh in a financial year is exempt from tax. A tax of more than 1 lakh rupees is levied at the rate of 10%.
If units of mutual funds are sold within one year of the date of investment, the total amount of profit will be taxed at the rate of 15%.
If you continue to service the units, there will be no tax.