Despite significant volatility in the stock market, arbitrage funds have delivered higher returns over the past year compared to fixed deposits (FDs) offered by banks. Data from Arthlabh indicate that these funds have yielded over 7% returns in one year, whereas most major banks have offered interest rates below 7% on FDs during the same period.
According to the data, over the past three years, Axis Arbitrage Fund provided a return of 6.25%, while Tata’s arbitrage fund in the same category delivered 6.29%. Aditya Birla’s scheme generated a return of 6.31%, Union Mutual Fund’s arbitrage scheme yielded 6.18%, and HSBC and Baroda BNP Paribas Mutual Fund schemes provided returns of 6.19% each.
One-year returns of Arbitrage Funds
Axis – 7.32%
Tata – 7.28%
Aditya Birla – 7.28%
Invesco – 7.31%
Market analysts suggest that the Indian equity market witnessed heavy selling pressure at the beginning of 2025, making January a challenging month. Mid-cap and small-cap stocks, which performed well in 2024, came under selling pressure in January due to valuation concerns, lower corporate earnings, and cautious investor sentiment.
Despite market weakness and heavy outflows from foreign institutional investors (FIIs), certain sectors benefitted from strong investments by domestic institutional investors (DIIs). The Axis Arbitrage Fund primarily invests in the Axis Money Market Fund. This fund holds high-rated money market instruments with maturities ranging from one to nine months.
To ensure optimal performance, fund houses closely monitor their investments throughout the month. The timing of entry and exit in arbitrage funds is crucial, and investors should remain vigilant while making investment decisions in this segment.