Attractive spreads drive arbitrage funds to better returns in 2023

Staged strong comeback last year, stole march over debt funds to post best performance in 8 years

Arbitrage funds made a strong comeback in 2023 as a sharp improvement in performance along with a higher tax arbitrage vis-a-vis debt funds boosted investor interest in the low-risk hybrid offering.

The category has delivered 7.6 per cent return on an average in 2023, the highest since 2015.

The returns had ranged between 4.1 per cent and 4.6 per cent in the previous three calendar years, shows data from Value Research.

Experts say the surge in returns is a result of the widening of price differential between cash and the derivatives market.

“Arbitrage funds delivered encouraging returns on account of