How are arbitrage funds and equity savings funds different?

What is the difference between arbitrage funds and equity savings funds?
-Shreya

They are very different. Arbitrage fund will give you return like a liquid fund. They invest in equity derivatives and equity in a manner that they are able to generate returns which is of a very lowly kind. So think of arbitrage fund as liquid fund, except the fact that the tax treatment will be like that of equity.

Whereas, in equity savings fund, a third of the money is invested in equity, one-third of the money is invested in arbitrage which is like liquid fund and one-third of the money is invested in fixed income securities. So, it will give you lower return than balanced fund over a long period of time but it has far greater stability. Also, the tax treatment will be like that of an equity fund.

This article was originally published on March 07, 2019.