Arbitrage funds, which buy in cash markets and sell in futures at higher prices, are feeling the impact of the ongoing market volatility with the futures now trading at a discount to spot market prices.
This has led to spreads for such funds shrinking, with some fund houses suspending fresh flows into these schemes to insulate new investors from the dislocation in the market.
Recently, both Tata MF and ICICI Prudential MF suspended fresh flows to their arbitrage schemes. ICICI MF has stopped accepting fresh investments till March 31.
“Future market opportunities in the arbitrage space have reduced drastically. To quantify the fall