Should you put money into the recently established Parag Parikh Arbitrage Fund? 7 experts respond

Should you put money into the recently established Parag Parikh Arbitrage Fund? 7 experts respond

In order to take advantage of price differences, arbitrage includes the simultaneous purchase and selling of the same item in separate marketplaces. Differences in price between the cash market and the futures market are common in the Indian equities market.

These funds are a unique kind that take advantage of the widening disparities between the market's cash and stock futures divisions. The main objective of the funds in this hybrid category is to profit from these arbitrage possibilities. These variations may be taken advantage of by arbitrage-focused traders to produce successful returns. The ability of arbitrage funds to serve as a safe haven for your money is one of their main draws. Due to their significant tax advantages over debt and money market funds—which may be attributed to the tax advantages associated with equity investments—many investors choose arbitrage funds.

Arbitrage funds are not viewed with the same enthusiasm by all investors. Many individuals have begun to doubt the wisdom of investing in such funds in the wake of the recent introduction of the Parag Parikh Arbitrage Fund. The highest performing arbitrage fund in the last ten years only generated returns of less than 7%, indicating that these products do not provide substantial profits. However, many investors are shifting their money to these funds in order to continue earning returns and take advantage of tax deductions due to the present economic instability caused by unanticipated geopolitical tensions and other macro variables.

The founder of Ladder7 Financial Advisories, Suresh Sadagopan, said that arbitrage funds are low-risk investments that may provide 4% to 5% returns annually. Given that this is regarded as an equity fund for taxes reasons, it will be an excellent location to park for any immediate requirements. Therefore, the STCG tax is only 15% for the first 12 months and 10% thereafter after the first LTCG value of Rs. 1 lakh.

Due to uncertainties and high valuations, says Hiren Thakkar, Chartered Accountant and Owner of Hiren S Thakkar & Associates, now is the ideal moment to invest in arbitrage funds. You shouldn't invest extra funds in stocks because of their high value, according to Thakkar. Arbitrage funds may be a wonderful place to invest your money if you are unsure of the specifics of debt funds, want to park your money for a short period of time—say, less than a year—or want to take advantage of the tax advantages.

Viral Bhatt, the founder of Money Mantra, said this while describing who should invest in arbitrage funds: "You should consider investing in an arbitrage fund if and when you are seeking for a low-risk investment alternative. Because they take advantage of pricing inefficiencies across several marketplaces, arbitrage funds are seen as being relatively low-risk investments. You're looking for reasonable returns. The returns provided by arbitrage funds are often better than those of liquid funds but lower than those of equity funds. You are making investments with a short- to mid-term time horizon. Investors who are wanting to invest for three to five years are best suited for arbitrage funds.

Investing in the Parag Parikh Arbitrage Fund is recommended.

On October 23, 2023, PPFAS Mutual Fund introduced the Parag Parikh Arbitrage Fund. The new fund will be accessible for purchase and sale from November 3 of this year after it expires on October 27, 2023.

According to the Scheme Information Document (SID), "The investment target of the scheme is to generate appreciated capital and income by predominantly utilizing arbitrage opportunities in the cash and derivatives section of the equity market, and by putting effort the balance in debt as well capital market instruments."

This fund's strategy to benefit from stock price discrepancies and their ultimate convergence over time is similar to that of other arbitrage funds. Due to more market involvement, there are less chances for arbitrage in the market. Except for those who are looking for tax advantages or who have a severe intolerance to rapid market changes, most investors do not find arbitrage fund investments to be very appealing.

Arbitrage funds are favored primarily for the tax advantages, according to Shyam Sekhar, founder of ithought Financial Consulting LLP, a SEBI Registered RIA & PMS Firm. There isn't much that separates various arbitrage goods. Consider this recently created fund by PPFAS if you want to retain your cash in arbitrage methods as a parking investment, particularly if you want to switch to their equity schemes in the future.

Basavaraj Tonagatti, a SEBI-registered expenditure advisor and the founder of Basu Nivesh, defended the rationale for investing in the recently launched Parag Parikh Arbitrage Fund, saying, "Given the fund house's history of establishing a conservative approach in both their liquid fund as well as conservative hybrid fund, and assuming they maintain a similar strategy when managing the arbitrage fund in a debt allocation of approximately 35%, I strongly suggest considering this fund over others.

offers from old and new funds

When deciding whether to accept fresh fund offers, there are several factors to consider. Due to the low net asset value (NAV), these offerings may seem appealing, but there is no way to predict how these funds will perform over the long term.

Arbitrage funds are funds that concentrate on creating returns via the price differential between the spot and derivatives markets, according to Priyadarshini Moreshwar Mulye, a SEBI Registered Investment Advisor and the founder of ARTHA FinPlan. However, there are no historical performance data, risk indicators, etc., to review and analyze when we invest in NFO. Therefore, one may invest if they are willing to try a brand-new fund on the market, are knowledgeable about how this class of funds operates, and can maintain their investment while doing an ongoing evaluation.

Rajani Tandale, Product Head - Mutual Fund, 1finance.co.in, shares her thoughts on investing in current funds as opposed to pursuing new fund offerings. According to Tandale, the PPFAS Arbitrage Fund follows the same basic principles as many other funds in its category. It provides a balanced strategy to taking advantage of arbitrage possibilities by allocating 65% to equities arbitrage and around 35% to debt and money market products. It's interesting to note that there are over 26 funds in the arbitrage area, giving investors a wide range of options. Investigate current arbitrage funds with a track record of success if you're thinking about investing in this field since they may provide you confidence and peace of mind about your investment.

The decision to invest or not depends more on your financial objectives and your perception of the market's long-term trends. When investing money, there are no set guidelines. "To each, his own" serves as the compass for all of our financial choices. To benefit from their knowledge and experience, it is important to speak with a financial adviser if you are unsure about how, where, or when to invest your money.