Did you know - Six things about arbitrage funds?

Arbitrage is a strategy that consists of concurrent buying and selling of equal or comparable securities from at least two markets in order to profit from the variation in their prices.

What makes this strategy risk-free is the fact that both buy and sell transactions precisely balances each other, thus making them invulnerable to market swings.

• Arbitrage funds are mutual fund schemes that invest in the equity markets to benefit from mispricing situations in the stock, cash and derivative markets.

• These funds buy stocks in the spot market and sell in the derivative market to earn from the difference in pricing.

• The returns from these funds typically reflect the current short-term interest rates in the market.

• The returns from arbitrage funds mainly depend on the availability of arbitrage opportunities.

• During periods of market volatility, greater price anomalies are more likely and these funds tend to generate good returns.

• Arbitrage funds attract a short-term capital gain tax of 10% and are tax-free if held for a period of more than one year.

Source: http://economictimes.indiatimes.com/personal-finance
Follow us: www.facebook.com/karvywealth