Arbitrage Mutual Fund: Park short-term surplus aiming capital appreciation with minimal risk, periodic income & tax arbitrage..!
Investors may 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.
In the current
market environment where there is higher risk aversion on account of credit
issues& 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 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 6.47% (rolling returns) on 6 months daily basis under its
regular-growth option (data period: October 2014 to October 2019).
During the
same period the fund has generated return in the range of 4.95% (Minimum) 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 a
return of 6.40% under its regular plan and 6.92% under its direct plan on 1
year basis . (data as of 31st October 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.
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