Why should you consider adding arbitrage funds to your portfolio?

Arbitrage fund
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A good investment strategy is all about exploring different methods to grow your wealth. If you are looking to enhance your investment portfolio, then a good addition to make is the arbitrage fund. Arbitrage funds have gained popularity for their ability to provide relatively stable returns, especially in volatile market conditions.

Let’s take a look at the benefits of investing a portion of your portfolio in an arbitrage fund.

  • Table of contents
  1. Understanding arbitrage funds
  2. Benefits of adding arbitrage funds to your portfolio
  3. Factors to consider when adding arbitrage funds
  4. Bajaj Finserv Arbitrage Fund
  5. FAQ

Understanding arbitrage funds

An arbitrage fund is a type of mutual fund that aims to profit from the price difference of an asset in different markets. For example, a stock might be traded at different prices in the cash and derivatives markets. The fund buys the stock at the lower price and sells it at the higher price, thus making a profit from this price difference. Arbitrage funds primarily invest in equity and equity-related instruments, and a small portion in debt and money market instruments.

Benefits of adding arbitrage funds to your portfolio

There are many benefits of investing a portion of your portfolio in an arbitrage fund. Let’s take a look at some of them.

Growth potential: Arbitrage funds leverage price differences in markets, which can lead to consistent and relatively stable returns, especially in volatile market conditions. Their unique strategy of exploiting market inefficiencies allows for a steady appreciation in value, making them a suitable option for growth-oriented investors.

Relative stability in volatile markets: Unlike pure equity funds, arbitrage funds are relatively less impacted by market volatility. Their strategy of buying low and selling high in different markets seeks to provide a cushion against market fluctuations, offering relative stability to your investment portfolio.

Balanced risk-reward ratio: Arbitrage funds seek to strike a balance between risk and reward. While they aim to provide equity-like returns, their risk profile is closer to that of debt funds. This balanced approach makes them a suitable investment for those who are cautious yet seek reasonable returns.

Diversification: Diversification is key when it comes to investments. By investing in a mix of equity, debt, and money market instruments, arbitrage funds offer a balanced exposure to different asset classes. This diversification also helps in reducing the overall risk of your investment portfolio.

Flexibility: Arbitrage funds are known for their operational flexibility. They can quickly adapt to changing market conditions, swiftly moving between cash and arbitrage positions. This adaptability makes them suitable for various market situations, enhancing their appeal to a wide range of investors.

Liquidity: These funds typically offer higher liquidity compared to other investment options. Investors can usually redeem their investments within a short period, making arbitrage funds a suitable choice for those who may need quick access to their funds.

Factors to consider when adding arbitrage funds

While adding an arbitrage fund to your portfolio, it is important to assess your risk appetite and investment horizon. Other factors to consider are tax implications, expense ratio of the fund, and the fund manager's expertise. These funds are suitable for investors seeking short-term, low-risk investment options.

Bajaj Finserv Arbitrage Fund

If you’re looking at how to invest a portion of a portfolio in an arbitrage fund, the Bajaj Finserv Arbitrage Fund is a good option to consider. This fund invests a significant portion in equity and equity-related instruments and the rest in debt and money market instruments. With the aim to provide investors with income through arbitrage opportunities and minimal risk, this is a suitable option for conservative investors. For a detailed scheme information, click here.


Arbitrage funds are a low-risk investment instrument that can provide potentially stable returns in turbulent markets. These funds offer a unique way of capitalising on market inefficiencies and can be a useful tool for portfolio diversification. Like with any investment, it is important to understand your financial goals and risk tolerance before investing.


What is the minimum investment required for arbitrage funds?
The minimum investment required for arbitrage funds varies depending on the fund house and the specific fund scheme. For example, the minimum investment amount for the Bajaj Finserv Arbitrage Fund is Rs. 500.

How do market conditions affect the performance of arbitrage funds?
The performance of arbitrage funds is closely linked to the volatility in the market. In highly volatile markets, arbitrage opportunities tend to increase, as the price differential between cash and derivative markets can widen. This can lead to potentially higher returns for arbitrage funds. In stable or less volatile markets, these opportunities may decrease.

Can arbitrage funds be considered as a long-term investment option?
Arbitrage funds are typically seen as short to medium-term investment options. They are suitable for investors looking to park their funds for a few months to a couple of years. While they can be held for longer periods, the benefits of arbitrage funds are usually ideal in the short to medium term.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.