Union Mutual Fund has floated an open-ended arbitrage scheme namely Union Arbitrage Fund predominantly investing in arbitrage opportunities in the cash and derivatives segment of the equity market, and by investing the balance in debt and money market instruments. The NFO will open for subscription on January 30, 2019 and will close on February 13; the fund will reopen on or before February 27 for subscription and redemption.
Asset allocation and strategy
Arbitrage funds, by mandate, buy and sell securities on different exchanges thus benefitting from the price difference of securities. Therefore, Arbitrage fund is a type of equity fund proving equity exposure at very low risk.
|Instruments||Indicative allocations (% of total assets)||Risk Profile|
|Equity and Equity related instruments (as part of hedged / arbitrage exposure) *||65-90%||Medium to High|
|Debt and Money Market Instruments including margin money deployed for derivatives transactions||10-35%||Low|
The fund is benchmarked against Nifty 50 Arbitrage Index. The index measures performance of portfolio involving investment in equity and equivalent short position equity futures, short-term debt market investments and cash.
As on 31st December’18, 1-year return of the benchmark index is 4.46% and that of arbitrage category is 5.68%.
The fund will be jointly managed by Vishal Thakker (equity portion) and Devesh Thacker (Debt portion). Devesh Thacker is managing several other funds at Union Mutual Fund.
As the fund intends to allocate minimum 65% of its assets in Equity and Equity related instruments, it will be treated as the equity fund for taxation. The fund will be eligible for Long Term Capital Gains tax of 10% for holding period of more than one year and gains exceeding Rs 1 lakh. Short Term Capital Gains Tax of 15% will be levied for less than 1-year holding period.
Key features of the Fund
|NFO Period||30 Jan 2019 to 13 Feb 2019|
|Type of Scheme||An Open Ended Scheme investing in Arbitrage Opportunities|
|Benchmark||Nifty 50 Arbitrage Index|
|Min Application Amount||Rs 5,000 and in multiples of Re. 1/- thereafter.|
|Plans and options||Regular & Direct Plans Under which following Options are offered
-Dividend (Reinvestment / Payout / Sweep)
|Exit Load||• 0.25% if units are redeemed or switched out on or before completion of
1 month from the date of allotment of units.
• Nil if units are redeemed or switched out after completion of 1 month
from the date of allotment of units.
|Risk Profile||Moderately Low Risk|
|Investor Suitability||This product is suitable for investors who are seeking|
|•Income over short term from arbitrage opportunities in equity market.
• Investment in arbitrage opportunities in the cash & derivatives segment of the equity market
RupeeIQ take: This is a low risk product suitable for conservative investors who are wary of equity investments yet want to have some exposure to equities. The fund is suitable for short investment tenors of 1-2 years. As this fund is not banking on growth of a company or sectors or economy, we think staying invested in such a fund for longer tenors won’t make much sense from investors’ point of view.
Disclaimer: Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.