Arbitrague Funds

Arbitrage Funds look for making a bit more than the debt Funds by taking positions in the Cash & Equity markets; With permission of debt derivatives, more opportunities will be created in this segment. They are high Risk class.A derivative is a standardised contract(options or futures) traded on the exchange. Essentially a contract is an agreement with another to exchange a specified asset(physical/financial)at a pre-determened price on a specified future date. Options give the choice to excercise the right or not to the holder depending the market situation on the expiry date. However Futures do not give that kind of choices.

Options may be CALL or PUT . CALL OPTIONS give the right to buy whereas the PUT OPTIONS give the right to sell.

Options and futures are collectively called derivatives as they derive their value from an underlying asset(physical or finnacial).

Commodity derivatives are just getting popularised in India. Futures in the modern form date back to June 2000. Entry of Mutual Fund Products came by later.

Today there are more than two dozen arbitrage funds (Jan 2010) and much more using derivatives to hedge the portfolio or speculate for higher returns taking advanatage of the volatility in the markets. Arbitrage funds try to profit from the price differentials in the cash market and derivative markets. Some of the popular arbitrage funds are :

Benchmark Derivative Fund(Dec 2004)
Kotak Equity Arbitrgae Fund (Sep 2005)
J M Arbitrage Advantage Fund (Jun 2006)
UTI SPrEAD(Jun 2006)
SBI Arbitrage Opportunities Fund (Oct 2006)
Standard chartered Arbitrage fund( Nov 2006)
ICICI Pru Equity & Income Optimiser(Dec 2006)
Lotus India Arbitrage fund (Apr 2007)