Ride the short-term volatility with Arbitrage funds..!
Arbitrage
category of funds are witnessing renewed interest from investors on account of
higher market volatility. Investors use arbitrage fund to park their short-term
surplus aiming capital appreciation with minimal risk, periodic income and tax
arbitrage.
The fully hedged equity portfolio looks out for better arbitrage opportunities
and keeps risk of any directional equity calls away.
UTI
Arbitrage Fund is one among the early generation of arbitrage funds which was
launched in 2006 and now has a 13-year track record spanning across different
market cycles.
The fund has exhibited decent performance besides paying monthly
dividend under its regular and direct plans. The fund has delivered average
return of 6.48% (rolling returns) on 6 months daily basis under its
regular-growth option (data period: September 2014 to September 2019).During the
same period the fund has generated return in the range of 4.95% (Min) to 9.37%(maximum)
on 6 months daily rolling basis without any instances of negative returns.
On
compounded annual growth basis, the fund has delivered in excess of 6.11% under
its regular plan and 6.63% plus return in direct plan on 1 / 3 / 5 year basis. (data
as of 30th September 2019).
The
fund being equity oriented enjoys certain tax arbitrage (in respect of capital
gains tax and dividend distribution)compared to other debt investment avenues.The
fund has a reasonable track record of monthly dividend distribution. The periodic
income in the form of dividend can help investors plan out their finances in a
holistic manner. The NAV appreciation in addition to this adds to overall return.
In
the current market environment where there is higher risk aversion on account
of credit issue & market volatility, arbitrage funds can provide a relatively
safer investment avenue for short term parking of funds.
The fully hedged
equity portfolio takes the worry off for the investor and targets higher yield
from arbitrage opportunities.
On debt side, the fund manager focuses on quality
debt instruments (such as AAA , A1+) with low duration of 175-250 days.
UTI
Arbitrage Fund can be a good investment option given its track record. Notably,
the fund has grown up significantly in size i.e. from an AUM of Rs. 1.170 Crs in August 2018 to Rs. 2,751
crores as on 30th September 2019.
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