List of the Best Arbitrage Funds in India for 2025
Arbitrage funds are hybrid mutual funds that aim to generate returns by exploiting price differences between the cash and derivatives markets. They buy securities in the cash market and simultaneously sell them in the futures market, locking in the price gap. According to AMFI data, as of August 2025, the total assets under management (AUM) of arbitrage funds crossed ₹1.4 lakh crore, reflecting growing investor interest in low-risk strategies.
Top Arbitrage Mutual Funds in India Based on 5Y CAGR
| Fund Name | Fund Size (Rs. in cr) | Expense Ratio (%) | 3Y CAGR (%) | 5Y CAGR (%) |
|---|---|---|---|---|
| Invesco India Arbitrage Fund | 25,149.78 | 0.39 | 7.87 | 6.51 |
| Kotak Arbitrage Fund | 71,608.20 | 0.44 | 7.83 | 6.48 |
| Tata Arbitrage Fund | 18,596.32 | 0.31 | 7.79 | 6.44 |
| Edelweiss Arbitrage Fund | 15,930.88 | 0.38 | 7.77 | 6.44 |
| Aditya Birla SL Arbitrage Fund | 23,581.20 | 0.31 | 7.71 | 6.34 |
| Axis Arbitrage Fund | 7,545.06 | 0.33 | 7.59 | 6.33 |
| SBI Arbitrage Opportunities Fund | 41,551.78 | 0.4 | 7.73 | 6.32 |
| Nippon India Arbitrage Fund | 15,505.59 | 0.38 | 7.63 | 6.32 |
| Bandhan Arbitrage Fund | 8,369.22 | 0.35 | 7.71 | 6.29 |
| ICICI Pru Equity-Arbitrage Fund | 32,592.70 | 0.4 | 7.64 | 6.27 |
Note: The list of top arbitrage funds is from 9th September 2025, and the data is derived from Tickertape Mutual Fund Screener, using the following filters:
- Category: Arbitrage Fund
- Plan: Growth
- CAGR 5Y: Sorted from Highest to Lowest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Best Arbitrage Mutual Funds in India (2025)
Invesco India Arbitrage Fund
Invesco India Arbitrage Fund is a Hybrid Mutual Fund Scheme launched by Invesco Mutual Fund. This fund focuses on generating income by capitalising on arbitrage opportunities arising from price differences between the cash and derivatives markets. Additionally, any surplus cash is deployed in fixed-income instruments to enhance returns while maintaining a low-risk profile.
Kotak Arbitrage Fund
Kotak Equity Arbitrage Fund is an Arbitrage mutual fund scheme from Kotak Mahindra Mutual Fund. This fund seeks to generate capital appreciation and income through arbitrage opportunities in the cash and derivatives markets. To ensure stability, the balance of the portfolio is allocated to debt and money market instruments. The fund is designed to provide relatively lower risk while benefiting from market inefficiencies.
Tata Arbitrage Fund
Tata Arbitrage Fund Direct Growth seeks to capitalise on arbitrage opportunities across equity and derivative markets, aiming to minimise risk and deliver consistent returns. This fund focuses on capital preservation and aims to deliver better post-tax returns compared to traditional savings instruments, employing a market-neutral strategy.
Edelweiss Arbitrage Fund
The fund aims to generate capital appreciation and income by primarily investing in arbitrage opportunities available in both the cash and derivative segments of the equity markets. It also seeks arbitrage opportunities within the derivatives market and allocates the remaining portion of the portfolio to debt and money market instruments.
Aditya Birla SL Arbitrage Fund
Aditya Birla SL Arbitrage Fund aims to capture price differences between the cash and derivatives markets. It invests in equity, derivatives, and debt instruments to deliver relatively stable returns during volatile market conditions.
Axis Arbitrage Fund
Axis Arbitrage Fund focuses on exploiting short-term price mismatches between cash and futures markets. It primarily invests in arbitrage opportunities while allocating surplus funds to debt and money market instruments for liquidity management.
SBI Arbitrage Opportunities Fund
SBI Arbitrage Opportunities Fund seeks to generate income by leveraging price differences in the spot and futures markets. It invests in equity, derivatives, and fixed-income securities to manage volatility effectively.
Nippon India Arbitrage Fund
Nippon India Arbitrage Fund generates returns through arbitrage strategies involving the simultaneous purchase and sale of securities in cash and derivatives markets. It also maintains debt exposure to ensure liquidity and stability.
Bandhan Arbitrage Fund
Bandhan Arbitrage Fund captures arbitrage opportunities arising from pricing inefficiencies between spot and futures markets. It combines equity and derivatives positions with debt investments to manage short-term volatility.
ICICI Pru Equity-Arbitrage Fund
ICICI Pru Equity-Arbitrage Fund focuses on generating income by exploiting arbitrage opportunities across cash and derivatives markets. It invests in equity, futures, and debt instruments to balance risk and maintain liquidity.
How to Invest in Arbitrage Mutual Funds?
You can easily invest in arbitrage mutual funds by following these steps:
- To invest in the best mutual funds in India, you can visit an equity investment platform such as smallcase or Tickertape.
- The next step would be to research and identify the best arbitrage funds which aligns with your investment thesis. You can easily select and learn more about the best performing mutual funds India with the help of a financial tool like the Tickertape Mutual Fund Screener. With 50+ pre-loaded filters, it helps you to create a comprehensive list by giving insights about the fund’s performance and helps in conduction arbitrage fund comparison.
- Once you have selected the long or short-term arbitrage funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number. Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘Invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!
Note: It is important to conduct thorough research and consult a financial advisor before investing in anything. Let us now learn how hybrid arbitrage funds work.
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What are Arbitrage Funds?
Arbitrage funds are mutual funds that aim to generate returns by exploiting price differences in different markets or forms of a security. These funds primarily benefit from the spread between the cash (spot) and futures markets, making them one of the preferred low-risk arbitrage funds. Over a 6 to 12-month period, the returns from arbitrage mutual funds often resemble those of liquid funds, making them a viable choice for investors looking for stability.
How Do Arbitrage Funds Work?
Hybrid arbitrage funds work by simultaneously buying and selling the same asset in different markets to capture the price differential. Here’s a simplified breakdown:
- Identifying Arbitrage Opportunities: Fund managers look for price discrepancies between the cash and futures markets of the same asset.
- Simultaneous Transactions: Buying occurs at a lower price in one market (typically the cash market), while selling happens at a higher price in another (typically the futures market).
- Locking in Profits: The difference between buying and selling prices, after accounting for transaction costs, represents the profit.
- Investing in Debt Instruments: When fewer arbitrage opportunities exist, a portion of assets may be allocated to debt investments to maintain steady returns.
Features of Arbitrage Mutual Funds
Arbitrage funds are classified as hybrid mutual funds since they blend elements of equity and debt. Some key features include:
- Hybrid Investment Approach: These funds maintain a significant portion of assets in equities, qualifying them for equity fund taxation.
- Tax Efficiency: Many investors consider tax-free arbitrage funds due to their classification under equity taxation rules, offering potential tax advantages over pure debt funds.
- Low-Risk Investment: Unlike pure equity funds, arbitrage mutual funds aim to generate returns through arbitrage opportunities rather than direct market movements, making them relatively low risk.
- Volatility Advantage: Market fluctuations create more arbitrage opportunities, benefiting these funds.
Advantages of Investing in Arbitrage Funds
Here are a few arbitrage fund advantages:
- Minimal Risk Exposure: These funds are among the safest arbitrage mutual funds, as they capitalise on low-risk price differentials.
- Higher Returns Than Savings Accounts: While not entirely risk-free, high return arbitrage funds have historically outperformed savings accounts in terms of yield.
- Tax Benefits: Arbitrage funds for investment are often tax-efficient due to their equity fund classification.
- Flexible Investment Options: Investors can opt for lump sum investments or systematic investment plans (SIP), making them accessible for different financial strategies. Lump sum investments start at ₹1,000, while SIPs can begin with as little as ₹ 500, allowing gradual investment over time.
How are Returns Calculated for Arbitrage Funds?
The arbitrage fund returns are calculated based on the profits generated from exploiting price discrepancies between the cash and derivatives markets. Here’s a breakdown of how these returns are The successful execution of arbitrage strategies determines returns from arbitrage funds. Here’s how:
- Arbitrage Profits: The fund manager identifies opportunities where an asset is priced lower in the cash market than in the futures market, buying in the cash market and selling in the futures market to lock in profits.
- Short-Term Debt Investments: Some top-performing arbitrage funds allocate a portion of their portfolio to short-term debt instruments when arbitrage opportunities are limited.
- Return Calculation Methods:
- Absolute Returns: Measures the percentage increase in the arbitrage fund NAV over a specific period.
- Annualised Returns: Represents the compounded annual growth rate (CAGR) over multiple years for arbitrage fund performance comparison and to analyse arbitrage fund growth.
- Impact of Fees and Expenses: Management fees and operational costs can influence net returns.
Who Should Explore Arbitrage Funds?
- Risk-averse Investors: Arbitrage mutual funds can be attractive to individuals seeking equity market exposure but are uncomfortable with mutual funds’ high risk.
- Short-term Investors: These funds can appeal to those planning to invest for a brief period, typically less than three years, due to their conservative nature.
- Tax-conscious Investors: By qualifying as equity funds for tax purposes, arbitrage mutual funds provide a more tax-efficient return compared to traditional fixed-income investments, and thus, may attract tax conscious investors.
Note: However, investing in any stock is subject to market risk, and investors should do their own research before investing. Any stock is subject to market risk, and investors should do their own research before investing.
Risks Involved With Arbitrage Funds
Here are a few arbitrage fund risk factors that investors can consider before investing:
- Interest and Credit Risks: While minimal, these risks exist because arbitrage funds invest part of their assets in short-term debt or term deposits.
- Flat Market Risks: During periods when markets are flat, arbitrage opportunities are scarce, potentially leading to lower-than-average returns.
- High Expense Ratios: The need for frequent trading in arbitrage funds for conservative investors can result in high expense ratios, which can impact overall returns.
TTaxation on Arbitrage Funds after the Union Budget of 2024-25
Here are the recent arbitrage fund tax implications in India:
Equity Mutual Funds
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
- Tax-Free Limit: The capital gains up to ₹1.25 lakh per year are tax-free. This is an increase from the previous limit of ₹1 lakh.
- Tax Rate: The gains exceeding ₹1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
Debt Mutual Funds
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Taxed according to your income tax slab | Taxed according to your income tax slab |
| Long-Term Capital Gains (LTCG) | More than 36 months | 10% | 12.50% |
- No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.
- Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG.
Hybrid Mutual Funds
| Type of Hybrid Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Indexation Benefit |
| Equity-Oriented Hybrid Funds | 20% for holdings less than 1 year | 12.5% for holdings over 1 year, with gains up to ₹1.25 lakh tax-free. | Not available |
| Debt-Oriented Hybrid Funds | Taxed as per income tax slab for holdings less than 3 years | 12.5% for holdings over 3 years | Not available |
Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.
Factors to Consider Before Investing in Arbitrage Funds in India
When evaluating arbitrage funds for short-term investment, consider the following:
- Expected Returns: Arbitrage mutual funds provide moderate returns, balancing equity and debt fund characteristics.
- Investment Duration: Many funds impose exit loads, making them suitable for investors with a minimum investment horizon of 3-6 months.
- Financial Goals: Investors seeking short-term parking of surplus funds or looking for alternatives to savings accounts may find arbitrage funds appealing.
To Wrap it Up…
Arbitrage funds offer a structured approach for investors looking to balance risk and return, particularly in volatile markets. Their hybrid nature makes them a compelling option in a diversified arbitrage fund portfolio. While they capitalise on price inefficiencies, factors such as taxation, fees, and market conditions should be carefully assessed before investing.
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Frequently Asked Questions (FAQs) on Arbitrage Funds
Based on the 5-year CAGR, some of the top arbitrage funds with high returns include:
– Invesco India Arbitrage Fund
– Kotak Arbitrage Fund
– Tata Arbitrage Fund
Note: The data in this list was taken on 9th September 2025. This information is for educational purposes only and does not constitute financial advice.
While considered low risk, arbitrage funds are still subject to market fluctuations and other external factors.
Arbitrage mutual funds generally offer lower risk and greater tax efficiency than pure equity funds. However, returns can be lower than those of high-risk equity funds. Investors should conduct thorough research and/or consult a financial advisor before investing.
Yes, investors can choose either SIP or lump sum investments based on their financial strategy and goals.
These are hybrid funds that generate returns by taking advantage of price differences between cash and futures markets, making them a viable choice for both short-term and tax-conscious investors.
