Arbitrage funds vs Liquid funds: Where should you invest for the short term?

If a week is a long time in politics, a month can be an eternity in investing. Ask arbitrage funds, which were on cloud nine between April 2023 and July 2024. In fact, they received over Rs 11,000 crore this July, only to be rudely brought down to earth the following month in August, when they got just over Rs 2,300 crore. Why? The short-term capital gains (STCG) tax rate was hiked around that time. Now, if you withdraw from arbitrage funds within a year, you'll be taxed at a flat 20 per cent, up from the earlier 15 per cent. As a result, liquid funds have emerged as a strong alternative, especially for those looking to invest for a short time (a week to a year). So, let's look at the numbers to see which option is better. If you are investing for less than a year If