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Is an arbitrage fund suitable for starting an STP into index funds?

Dhirendra Kumar tells whether doing a Systematic Transfer Plan (STP) from an arbitrage fund into index funds would be suitable in the current scenario

I want to invest a lumpsum of Rs 5 lakh in an arbitrage fund. From where I plan to start a Systematic Transfer Plan (STP) into some of the index funds. Will this be a right option in today's scenario?
- Ashok

It could be. But you should look at an arbitrage fund just like a liquid fund because there will just be a nominal difference between the two. The tax efficiency that comes with arbitrage funds can actually go away by way of lower returns as these funds are increasingly finding it difficult to match the returns of a liquid fund.

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