Arbitrage mutual funds are a popular investment option for NRIs (Non-Resident Indians) looking to diversify their portfolio while taking advantage of low-risk opportunities. These mutual funds aim to exploit price differentials between the cash and derivatives markets, providing investors with relatively stable returns. In this blog, find out all about Arbitrage Mutual Funds for NRI 2024, returns, NAV, expense ratio, benefits, taxation, and how to invest in Arbitrage Mutual Fund as an NRI investor.
What is Arbitrage Mutual Funds?
Arbitrage mutual funds are low-risk equity mutual funds. They offer better returns than interest from Savings Bank Accounts while also being safer than most of the Debt Mutual Funds. These mutual funds invest the money into equities of the same security in different markets tapping into the concept of arbitrage where they invest in the stocks in the cash market and then sell the interest in the futures market of the same stocks. This helps make gains from the volatile market without taking on much risk.
To understand the Arbitrage Mutual funds, we need to understand the cash market and futures market and how they work:
- Cash Market: Cash market refers to the market where the transactions are settled on the spot. For example, in secondary equity market, the shares are transacted through the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) and settled on the spot.
- Futures Market: Futures market is the market where you buy and sell stocks at a predetermined price on a future date. The price of such asset may be higher or lower than the cash market in the future and this difference is where the arbitrage trade aims to make the profit from.
Also read: Best SIP to Invest in 2024 – Top 10 SIP Mutual Fund Plans for NRIs/OCIs
How does Arbitrage Mutual Fund work?
Let’s take an example to understand it better.
Let’s say, shares of a company XYZ is trading at Rs 900 in the cash market and Rs 925 in the futures market. The fund manager will buy the shares of XYZ from the cash market at Rs 900 and then buy a futures contract to sell the shares at Rs 925. When the prices coincide, the fund manager will sell the shares in the futures market and generate a profit of Rs 25 (925-900) per share from the deal.
However, the markets don’t always function that way and share prices may go down in the future. As such, if the fund manager feels that the share prices will go down in the future, then he buys a long contract in the future market. In this case, he will short-sell the shares in the cash market at Rs 925 and at expiry he will buy the shares at Rs 900 to cover up the position. This will again give him a profit of Rs 25. This way, arbitrage funds aim to capture profits by trading the shares in cash market and futures contracts simultaneously.
Also read: Best Mutual Funds for NRI in India 2023
What are the Best Arbitrage Mutual Funds for NRI?
Investing in mutual funds as an NRI has a slightly different procedure than that of residents. For that, you need a NRO/NRE account and Mutual Fund KYC to start your investment in Indian mutual funds. Furthermore, certain regulations of the FEMA Act need to be adhered to as an NRI investor in mutual funds. This is a prime reason why NRIs from the US and Canada can only invest in a few mutual fund schemes whereas NRIs from other countries can choose to invest in a variety of mutual fund schemes. To know more about NRI mutual fund investment procedure, steps, and rules, please refer here.
That being said, once your documentation and procedures are done, you can start investing in arbitrage mutual funds with ease. We’ll look to list the top 10 best arbitrage mutual funds for NRIs in the below segment.
Also read: NRI Mutual Fund KYC in India: The Ultimate Guide 2024
Top 10 Best Arbitrage Mutual Funds for NRIs to Invest in 2024
| Fund Name | AUM (In Crores) | Expense Ratio | Current NAV | 1 YR |
| Invesco India Arbitrage Fund Growth for NRI | 10,232 Cr | 1.1% | 28.75 | 7.51% |
| Edelweiss Arbitrage Fund Growth for NRI | 7,671 Cr | 1.1% | 17.47 | 7.41% |
| Kotak Equity Arbitrage Fund Growth for NRI | 31,452 Cr | 1.0% | 33.72 | 7.66% |
| Tata Arbitrage Fund Growth for NRI | 7,980 Cr | 1.1% | 12.97 | 7.33% |
| Nippon India Arbitrage Fund Growth for NRI | 11,945 Cr | 1.1% | 24.00 | 7.29% |
| Axis Arbitrage Growth for NRI | 3,522 Cr | 1.0% | 16.87 | 7.17% |
| Aditya Birla Sun Life Arbitrage Fund Growth for NRI | 6,377 Cr | 1.0% | 23.97 | 7.38% |
| SBI Arbitrage Opportunities Fund Growth for NRI | 23,775 Cr | 0.9% | 30.49 | 7.69% |
| ICICI Prudential Equity Arbitrage Fund Growth for NRI | 16,006 Cr | 1.0% | 30.93 | 7.41% |
| Bandhan Arbitrage Fund – Plan – Growth for NRI | 4,147 Cr | 1.1% | 29.27 | 7.32% |
Benefits of Investing in Arbitrage Mutual Funds for NRI
Following are the benefits of investing in arbitrage mutual funds for NRI investors:
- Lower Risk: Arbitrage mutual funds are known for their relatively lower risk profile. These funds aim to profit from price differentials between the cash (spot) and derivatives markets. By taking advantage of these price gaps, arbitrage funds provide a more stable investment option compared to traditional equity funds. NRIs can benefit from reduced exposure to market volatility while still having the potential for modest returns.
- Tax Efficiency: One of the significant advantages of investing in arbitrage mutual funds for NRIs is their tax efficiency. In India, the tax treatment of these funds is favorable. Short-term capital gains are taxed at 15%, and long-term capital gains from equity investments are capped at 10%. NRIs from countries with higher tax rates may find this tax structure advantageous, as it can result in lower tax liability compared to other investment options.
- Diversification: Arbitrage funds provide diversification benefits by investing in both the equity and derivatives markets. This diversification can help spread risk across different asset classes. For NRIs looking to mitigate risk and reduce their exposure to individual stocks or market sectors, arbitrage mutual funds offer a well-rounded investment approach that can enhance portfolio diversification.
- Steady Returns: The primary objective of arbitrage mutual funds is to generate steady, consistent returns over time. They focus on capturing small price discrepancies, which can lead to a more stable return pattern. NRIs seeking a source of regular income or a dependable investment for their financial goals may find that arbitrage funds align with their needs. These funds can provide a dependable source of returns, making them suitable for those with a lower risk appetite.
Also read: Top 5 Tips for NRIs to Pick a Winning Mutual Fund
Who should invest in Arbitrage Mutual Funds?
Arbitrage mutual funds are best suited for investors both residents and NRIs alike who are looking for short-term horizon investing. Since arbitrage funds are low-risk investments, this allows for a relatively safer choice. It is best suited for NRI investors looking to generate higher returns than debt mutual funds by taking advantage of market fluctuations.
Investment tools for NRIs to invest in Arbitrage Mutual Funds
Majorly there are two tools for any basic NRI investment in India, which are:
- Non Resident External (NRE) Account: To invest on a repatriable basis
- Non Resident Ordinary (NRO) Account: To invest on a non-repatriable basis
An NRI can invest in Mutual Funds In India using the above-mentioned accounts.
Taxation on Arbitrage Mutual Funds for NRI
Arbitrage funds are treated as equity funds for taxation. As such, the short-term capital gains (STCG) on investments held for less than a year will be taxed at 15%. As for long-term investments held for more than a year, the Long-term capital gains (LTCG) will be levied at 10%.
Wrapping Up
Arbitrage mutual funds for NRIs offer a relatively low-risk investment avenue looking to diversify their portfolios and generate stable returns. It’s crucial to conduct thorough research, consider the factors mentioned above, and assess your financial objectives before investing.
Invest in Arbitrage Mutual Funds for NRI with SBNRI
NRIs can now download the SBNRI App and choose to invest in different arbitrage mutual schemes in India with ease. You can also get detailed mutual fund advice from experts at SBNRI. Also, visit our blog and YouTube channel for more details.
SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs willing to invest in mutual funds in India can download the SBNRI App to choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.
FAQs
Which is the best Arbitrage Mutual fund for NRI to invest in 2024 for the highest return?
- Kotak Equity Arbitrage Fund Growth for NRI is the best equity fund for NRI to invest in 2024. It has a return of 7.66% in the last 1 year.
What is the taxation for arbitrage mutual funds for NRI?
- Arbitrage funds are treated as equity funds for taxation. As such, the short-term capital gains (STCG) on investments held for less than a year will be taxed at 15%. As for long-term investments held for more than a year, the Long-term capital gains (LTCG) will be levied at 10%.
Are arbitrage mutual funds safer for NRIs?
- Arbitrage mutual funds for NRIs offer a relatively low-risk investment avenue looking to diversify their portfolios and generate stable returns.
Is arbitrage mutual funds safer than FD?
- Fixed deposits have a risk-free fixed income and are safer than arbitrage mutual funds. However, as per the returns and growth opportunity, arbitrage mutual funds look to be a better investment option for investors, residents, and NRIs alike.
Can NRIs invest in arbitrage mutual funds?
- Yes, NRIs can invest in arbitrage mutual funds with ease after completing their mutual fund KYC and linking their NRO/NRE bank account to the KYC.
What are the investment options for NRIs in India?
- There are a plethora of investment options for NRIs in India. The top 5 investment options for NRIs include Fixed Deposits, Mutual Funds, Stocks, Real Estate and GOI Securities.
How can NRI invest in Indian Mutual Funds?
- An NRI can invest in Indian Mutual Funds using his/her NRE/NRO Account. The NRE Account is used to invest on a repatriable basis and NRO Account is used to invest on a non-repatriable basis.
Can I invest from the USA in India?
- Yes an NRI can invest from the USA in India in various asset classes such as FDs, Mutual Funds, Stocks etc.
Can NRI invest in SIP in Arbitrage Mutual Fund in India?
- Yes, an NRI can invest in India in various Arbitrage Mutual Funds through the SIP route. SIP stands for Systematic Investment Plan.
