Arbitrage funds give liquid-plus returns at low risk if held for long term

Post-tax returns are likely to be higher if you hold these funds for a year

One category that carries very low risk in ordinary circumstances but witnessed volatility and large outflows in March was arbitrage funds. According to industry sources, about Rs 32,000 crore flowed out of these funds (up to March 27). Experts say volatility has subsided. While there is no guarantee it won’t recur, the possibility of investors losing money in this category is low.

The primary reason for the pull-out of funds from this segment was that stock prices in the futures segment went into a discount, compared to the cash segment. Normally, the former trades at a premium to the latter. As