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AMFI-registered MFD · ARN-286779

Fund categories, explained

Arbitrage funds low-risk, taxed like equity.

An arbitrage fund buys shares and, at the same time, sells the same shares for a future date at a slightly higher price. It earns that gap, not the market’s rise, so its returns tend to follow short-term interest rates.

Book a review callTypical returns
Arbitrage funds, at a glanceAMFI data, 30 Oct 2026

6.0% over the past year

The typical (median) return of 33 regular-plan funds, all fund houses

How much is in shares0%25%50%75%100%65% or more in shares, hedged
Typical, 3 years
6.5% a year
Typical, 5 years
6.1% a year
Funds counted
33

The basics

What is a arbitrage fund?

Follows an arbitrage strategy, with at least 65% in equity and equity-related instruments.SEBI’s definition of the category

What it holds

  • Shares, each paired with a futures contract that locks in its sale price
  • Debt and money market instruments with the rest

Who it can suit

  • People in a high tax slab parking money for three months or more
  • Money that should not swing with the stock market, held long enough to pass the exit load

Comes up most in Corporate Treasury

Before you invest

Risks, tax and getting your money out.

The risks, plainly

  • Returns depend on the gap between cash and futures prices, which narrows when markets are quiet.
  • Not guaranteed. Over very short periods the value can dip before a position closes.
  • Many arbitrage funds charge an exit load if you sell within about a month; check the scheme.

How it’s taxed

Taxed as an equity fund, because at least 65% is in shares: gains on units held up to 12 months are taxed at 20%; after 12 months at 12.5%, above the yearly exemption for equity gains. For people in a high slab, this is usually less than the tax on debt funds.

Tax rules change with budgets. We go through the current position with you and your CA.

Getting your money out

  • Redemptions usually reach your bank within two or three business days.
  • An exit load often applies within the first month or so; it varies by scheme.

Typical returns

What the category has returned.

The median return of every arbitrage fund's regular plan, across all fund houses, from AMFI’s published NAVs as of 30 October 2026. Half the funds did better, half did worse.

Over 1 year

6.0%

Median of 33 funds

Over 3 years, a year

6.5%

Median of 25 funds

Over 5 years, a year

6.1%

Median of 20 funds

Regular plans, growth option, which include the distributor’s commission. Returns over a year are yearly averages (CAGR). Past returns of a category, not a recommendation of any scheme: past performance may or may not be sustained in future, and what suits you depends on your goals and a suitability check. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

FAQs

Your questions about arbitrage funds.

How does an arbitrage fund make money?
By buying shares in the cash market and selling them in the futures market at a slightly higher price, then closing both when the contract ends. The gap is the return; whether the share price rises or falls in between does not matter much, because the two positions offset each other.
Arbitrage fund or liquid fund?
Returns are often similar, but the tax is not. An arbitrage fund is taxed as equity; a liquid fund at your slab rate. For someone in a high slab holding for a few months or more, an arbitrage fund can leave more after tax. For money needed within weeks, a liquid fund avoids the arbitrage fund’s exit load.
Can an arbitrage fund lose money?
Rarely over months, but it is not guaranteed. In very short periods its value can dip, and when futures trade close to cash prices the return falls.
How are arbitrage funds taxed?
As equity funds: 20% on gains from units held up to 12 months, 12.5% after 12 months above the yearly exemption for equity gains. Tax rules change with budgets; we check the current position with you.
Is an arbitrage fund tax-free?
No. It is taxed as an equity fund: 20% on gains from units held up to 12 months, and 12.5% after that, above the yearly exemption on long-term equity gains. For someone in a high slab, that is usually less than the tax on a debt fund or an FD.
Arbitrage fund or FD?
An FD pays a fixed rate and its interest is taxed every year at your slab rate. An arbitrage fund’s return moves with short-term rates, isn’t guaranteed, and is taxed as equity only when you sell. It suits money you can leave for at least a few months, past its exit load.

Fund categories

Compare it with similar categories.

Liquid fundsInvests in debt and money market securities maturing in up to 91 days.Read more Money market fundsInvests in money market instruments maturing in up to one year.Read more Balanced advantage fundsInvests in equity and debt, with the mix managed dynamically.Read more

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