How is arbitrage fund taxed?

Arbitrage funds are treated as equity funds for taxation. Investors holding for less than a year pay 15% capital gains tax, while if they sell after a year, they pay only 10% long-term capital gains tax. In a debt fund, if an HNI sells before three years, he has to pay short-term capital gains tax of 30%.

Are arbitrage funds tax free?

These funds are treated as equity funds for taxation. If you stay invested for less than one year, then you make short-term capital gains (STCG) which are taxable. STCG is taxed at a rate of 15%.

Is arbitrage profit taxable?

Since arbitrage funds are categorised as equity funds, they are taxed accordingly. This gives arbitrage funds the benefit of zero taxes on the LTCG (long-term capital gains). If you hold the investments for more than one year, the returns are considered to be LTCG, and are tax free.

Can arbitrage funds give negative returns?

Arbitrage funds have an exit load of 1-6 months. Remember, widening of the spread differential can lead to arbit-rage funds delivering negative returns for very short periods. Also, assess fixed-income portion of such funds in respect of underlying credit and duration risk.

Can you lose money in arbitrage funds?

Arbitrage funds may also profit from trading stocks on different exchanges. They could be bought on one stock exchange at a certain price and sold on another exchange at a higher price. Equities are more volatile than most asset classes with even the possibility of a capital loss over the short-term.

Which is better liquid fund or arbitrage fund?

Liquid funds are much safer in comparison to arbitrage funds, as it invests mainly in debt-related instruments. While arbitrage funds are riskier as the investment returns are dependent on the market volatility. They try to maximize the difference between the cash and futures market to generate greater returns.

Are arbitrage funds still worth it?

Industry experts say arbitrage funds are a good choice for cautious investors who want to benefit from a volatile market without taking on too much risk. Hence as an investor, if you hold your shares in an arbitrage fund for more than a year, then any gains that are received are taxed at the capital gains rate.

Is tax arbitrage illegal?

Clearly, some forms of tax arbitrage are legal while others are illegal. A fine line between tax evasion and tax avoidance exists; thus, individuals and businesses should consult with a qualified tax advisor before running a tax arbitrage transaction.

Is there any risk in arbitrage?

In an all-stock offer, a risk arbitrage investor would buy shares of the target company and simultaneously short sell the shares of the acquirer. The risk to the investor in this strategy is that the takeover deal falls through, causing the investor to suffer losses.

What is the risk in arbitrage funds?

Benefits of Arbitrage funds Arbitrage funds offer multiples benefits – Experts say these include firstly, low risk because each security is bought and sold simultaneously; there is virtually none of the risk involved with longer-term investments.

Which arbitrage fund is good?

2. Top 10 Best Performing Arbitrage Funds

Is arbitrage fund safe?

He further adds, “Arbitrage funds are apt for those investors who are looking to have equity exposure but are worried about the risk associated with the same. Arbitrage funds are a safe option for risk-averse individuals to safely park their surplus funds when there is a persistent fluctuation in the market.”