Looking for a low-risk way to grow idle funds? Arbitrage funds might be your smartest move
ET Spotlight Every rupee sitting idly in a low interest account loses its edge, especially when inflation and taxes nibble away at potential returns. Keeping your money safe often means letting it pass up on significant gains. Sure, it is not at risk, but it is also not growing in any meaningful way. So what is the alternative when you want your money to remain accessible, but also work a bit harder?
The price gap hack: Where smart money moves
In the typical Indian household, ' get an FD [fixed deposit], it's safe ' is the standard chant to new investors, and sure, putting ₹1 lakh in a fixed deposit does feel reassuring. But once the initial comfort fades, the reality sinks in: it is barely earning anything! After taxes and inflation, FD returns are meagre. This is where arbitrage funds offer a smarter alternative, a low-risk way to keep your money accessible while capturing gains by buying in one market and selling in another at a slightly higher price.
In the stock market, arbitrage funds exploit price differences between two segments: The cash (spot) market , where stocks are bought and sold for immediate delivery at current prices
, where stocks are bought and sold for immediate delivery at current prices The futures market, where stocks are bought or sold at a pre-agreed price for delivery at a future date. For example, if a stock is trading at ₹100 in the spot market and ₹105 in the futures market, an arbitrage fund buys it at ₹100 and simultaneously sells it at ₹105, locking in a ₹5 profit per share. There is no guesswork or market prediction involved, just a steady gain from the price gap. Still confused? Think of a friend who buys a smartwatch at a warehouse sale for ₹2,500 and sells it online for ₹2,800, pocketing ₹300 with no risk. Arbitrage funds follow the same logic, and according to data from AMFI (Association of Mutual Funds in India)1, they have often delivered better post-tax returns than savings accounts and short-term FDs, especially for investors in higher tax brackets.
Why Axis Arbitrage fund could be your smart parking spot
Got some extra cash from a bonus, tax refund, or just a few months of savings you won't need right away? Letting it sit idle can feel safe, but it is also a missed opportunity. That's where Axis Arbitrage Fund steps in, offering a steady, low-risk way to keep your money active while staying accessible.Here's why it works: Captures price spreads, not market swings: Instead of guessing where the market is headed, it locks in small gains from price differences between the cash and futures markets.
Instead of guessing where the market is headed, it locks in small gains from price differences between the cash and futures markets. Low-risk, short-term solution: The fund uses fully-hedged positions, meaning market volatility has minimal impact, making it ideal for surplus cash you may need in 3–12 months.
The fund uses fully-hedged positions, meaning market volatility has minimal impact, making it ideal for surplus cash you may need in 3–12 months. Tax-smart structure: As an equity-oriented fund, it enjoys favourable tax treatment. Gains up to ₹1.25 lakh per year are exempt, and you could save up to 33% in taxes versus short-term debt funds or FDs.
As an equity-oriented fund, it enjoys favourable tax treatment. Gains up to ₹1.25 lakh per year are exempt, and you could save up to 33% in taxes versus short-term debt funds or FDs. Built for calm, not chaos: With part of the fund parked in secure instruments like treasury bills and deposits, your investment stays balanced, with equity-style potential and debt-like stability. If you are setting aside ₹50,000 for a holiday later this year or holding on to a freelance payment for a few months, this fund lets your money do a little more in the meantime, without taking on big risks.
Who is it ideal for? Arbitrage funds are great for people who want their short-term money to do a bit more without locking it away or exposing it to market ups and downs. They are especially suited for those in the 20–30% tax bracket, or anyone with money that's not needed for the next 3–12 months — like a bonus, freelance payout, or cash in between big expenses.
Ask yourself:
Is your annual income above ₹20 lakhs?
Are you looking for a short-term, low-risk home for surplus money?
Do you value liquidity and tax efficiency over high-risk, high-return bets? If your answer to these is yes, Axis Arbitrage Fund could be a strong fit. It combines structured, low-risk gains from market price gaps with the calm of stable debt instruments, helping you grow your money quietly without the stress.If not, don't worry. There are other smart options. If you want a broader mix, a Multi Asset Allocation Fund or Balanced Advantage Fund might suit you better. For pure debt exposure, you could consider an Ultra Short-Term or Short-Term Debt Fund.
Let your money work safely and smartly Not every investment needs to be bold to be effective. Sometimes, the smartest strategy is quiet, steady, and built on capturing small, consistent opportunities. That's exactly what arbitrage funds do, turning market price gaps and stable debt instruments into a low-risk way to keep your idle money in motion.
If you are exploring such a strategy, funds like Axis Arbitrage Fund offer a structured, tax-efficient option that balances access, safety, and short-term growth, without the stress of timing the market. References - https://www.amfiindia.com/Themes/Theme1/downloads/CRISIL-AMFI_singles.pdf Disclaimer - Mutual fund investments are subject to market risks, read all scheme related documents carefully.Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. Mutual fund investments are subject to market risks, read all scheme related documents carefully.
(This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)
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