I have a query regarding Arbitrage Fund. I am right now saving around Rs 8000 per month for my marriage that I am planning to do in March 2010 (Targeted amount is Rs.1, 20,000). One of the leading Magazines has suggested Arbitrage kind of fund for similar short term goals, goals which can not be pushed further. I would like to know more about these kinds of funds. Also please suggest any other options available for such short term goals (1-1.5 years).
Arbitrage Funds aims to capitalize on the opportunities arising from the mispricing between spot and future/options market. There is an advantage of investing in Arbitrage Fund, since these give similar returns as debt funds but their tax treatment is at par with equity funds. But in last six months, the returns of Arbitrage funds have not been as impressive as their past performance.
In a short period of investment, you should consider an investment in bank recurring deposit. Currently, some banks are offering around 10% annual returns on the investment amount in such time period.