The arbitrage category of funds continues to witness renewed interest from investors on account of market volatility. Investors use arbitrage funds to park their short-term surplus aiming capital appreciation with minimal risk, periodic income, and tax advantage. The fully hedged equity portfolio looks out for better arbitrage opportunities and keeps the 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 14-year track record spanning across different market cycles. The fund has exhibited decent performance besides paying monthly dividends under its regular and direct plans. On a compounded annual growth basis, the fund has delivered a return of 5.58% under its regular plan growth option and 6.12% under its direct plan growth option on a 1-year basis. (data as of 3rd June 2020).
The fund being equity-oriented enjoys certain tax arbitrage (in respect of capital gains tax ) compared to other debt investment avenues. The fund has a reasonable track record of monthly dividend distribution. The periodic income in the form of dividends 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 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 the debt side, the fund manager focuses on quality debt instruments (such as AAA, A1+) with an average maturity of 228 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 1319 Crores in January 2019 to 2849 crores as on 29th May 2020 2020.
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