Groww launches arbitrage fund seeking steady, low-volatility returns

New fund focuses on cash-futures price gaps to deliver stable, tax-efficient returns with lower volatility than typical equity schemes

Groww Mutual Fund has launched a new arbitrage scheme, positioning it as a relatively low-volatility, equity-oriented option that seeks to generate returns by exploiting price differences between the cash and derivatives markets.

 

The Groww Arbitrage Fund, open for subscription from April 8 to April 22 this year, follows a hedged strategy aimed at limiting directional equity risk while capturing arbitrage opportunities.

 

How the fund works

 

At its core, the scheme uses a “long cash–short futures” approach. This means the fund buys stocks in the cash market and simultaneously sells equivalent futures contracts to lock in price differences.

 

 

• The strategy is designed to reduce exposure to market swings
• Returns depend on the availability of arbitrage spreads
• Gains are market-linked, with no guarantee of returns

 

Arbitrage opportunities vary with liquidity, volatility, and market conditions, which means returns may fluctuate over time.

 

Asset allocation and structure

 

The fund will mostly invest in equity and equity-related instruments, maintaining over 65 per cent exposure to qualify as an equity-oriented fund for taxation, subject to prevailing laws.

 

In addition:

 

• Up to 35 per cent can be allocated to debt and money market instruments
• Debt exposure is aimed at liquidity and portfolio efficiency
• The scheme is open-ended, allowing entry and exit on all business days
• The benchmark for performance comparison is the Nifty 50 Arbitrage Total Return Index (TRI).

Fund managers and operational details

 

The scheme will be managed by:

 

• Paras Matalia
• Shashi Kumar
• Wilfred Gonsalves

 

Key investor details:

 

Minimum investment: Rs 500

 

Exit load: Nil

 

New fund offer price: Rs 10 per unit

 

Redemption timeline: Within 3 working days

 

Risk profile

 

Despite being positioned as a lower-risk strategy within equity funds, arbitrage funds are not risk-free.

 

Investors should be aware of:

 

Market risk: Arbitrage spreads may narrow or disappear

 

Liquidity risk: Difficulty in executing simultaneous trades

 

Operational risk: Execution inefficiencies in derivatives

 

The scheme’s risk statement indicates suitability for investors seeking exposure to arbitrage strategies with a relatively moderate risk profile.

 

Who should consider investing

 

The fund may suit investors who:

 

• Want a relatively stable, hedged investment option
• Have an investment horizon of at least a year
• Those looking for tax-efficient alternatives to certain debt instruments
• Prefer lower volatility compared to pure equity funds

 

However, it may not be suitable for those expecting fixed or assured returns.

 

Because the fund maintains equity exposure above 65 per cent, it is likely to be taxed as an equity fund, which can be more favourable than traditional fixed-income instruments. That said, tax treatment depends on individual circumstances and prevailing regulations.