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Arbitrage Funds Surge in Size

Most equity and hybrid funds have grown, but arbitrage funds have taken charge after the change in taxation of debt funds

Mutual funds have gained favour this year as markets have scaled new highs. The asset sizes of many funds have surged owing to strong inflows and excellent performance of the funds in the last one year. Comparing equity and hybrid fund size change from March to October, we find some to have grown more than 10x. JM Balanced and Arbitrage Fund has grown from ₹89 crore to close ₹5,700 crore because of a new annual bonus option that has been added. Investors can invest, get the bonus and book losses on the original value invested as the NAV will decrease, which can be set off against gains from other sources. Apart from this, arbitrage funds have gained popularity after the changes in taxation of debt funds in the Budget 2014-15. The AUM of arbitrage funds have grown to ₹15,462.59 crore from ₹4,207.33 crore during this time. In all, equity and hybrid funds assets have risen by 44 per cent in the past seven months.

On the flip side, some funds have struggled in this booming market. CPSE ETF which was launched with much fanfare has lost ₹674 crore worth of assets. Gold funds or gold-flavoured funds have also lost their sheen. These are the only funds among Value Research categories which have generated a negative six-month average return of 4.25 per cent. Other than these, international funds have turned unfavourable, which gets reflected in the decrease in the assets of 35 of these funds.

Rising Assets

Basic Name31/03/201431/10/2014Difference
JM Arbitrage Advantage Fund8957095620
IDFC Arbitrage Fund113223341202
Kotak Equity Arbitrage Fund85222951443
ICICI Pru Equity Arbitrage Fund4181160742
ICICI Pru Blended Plan - Plan A4021021619