How to make money in a volatile market: Check out top 5 Arbitrage funds to invest in

For investors to make hefty money, mutual fund industry has different funds for different situations. There are many funds that are tailor-made for a booming market, however, what about the funds for the situation where markets are extremely volatile?

Arbitrage funds best suited for investors who want to invest for a short term period. Source - Reuters.

For investors to make hefty money, mutual fund industry has different funds for different situations? There are many funds that are tailor-made for a booming market, however, what about the funds for the situation where markets are extremely volatile. So, the question arises - how to make money in a volatile market? Well, you can take a look at arbitrage funds. What is their purpose? Who should invest in such funds? What are their benefits and how to avail them? Financial expert Vikas Puri explains here:

There are innumerable benefits of arbitrage funds. Arbitrage funds come under the category of Mutual Funds. Around 65% of the fund money is invested in shares. Arbitrage funds have a better performance record in a volatile market. If you don't want to take high risk then invest in such instruments. Difference between the prices in the cash derivatives gives you your returns.

How safe is an Arbitrage fund? Experts term the arbitrage funds to be safe. Many investors hedge in derivative markets after investing in equity markets. Shares purchased in cash markets reduce risks. In a cash derivative market, the difference in the price of shares gives you returns. These funds do well in volatile markets.

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Arbitrage funds' treatment by taxman? For taxation purposes, an Arbitrage fund will be treated as an equity fund. For investments of less than one year, the STCG tax will be applied at 15%. For investments exceeding a one-year period, LTCG will be levied at 10%. From the point of view of post-tax returns, Arbitrage funds are good.

Who should invest? Investors who want to invest in a short term period can invest in arbitrage funds. The fund has good options for liquid and ultrashort funds. At the current interest rate of 5.15%, returns from liquid funds are not attractive. On liquid and ultrashort funds, returns between 6%-6.75% are possible.

Favourite funds of Vikas Puri are - HDFC Arbitrage Fund, Kotak Equity Arbitrage Fund, ICICI Pru Equity Arbitrage Fund, ABSL Arbitrage Fund and SBI Arbitrage Opportunities Fund

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mutual funds Personal Finance