LIC Mutual Fund launched LIC MF Arbitrage Fund, an open-ended scheme investing in arbitrage opportunities. The new fund offer (NFO) opens on January 4 and will close on January 18. The fund will be managed by Yogesh Patil (Equity) and Marzban Irani (Debt). Investors can make investment in the scheme in a lump sum.
The investment objective of the scheme is to generate income by taking advantage of arbitrage opportunity that potentially exist between cash and derivative market and within the derivative segment along with investments in debt securities and money market instruments. The fund manager will use a disciplined quantitative analysis while accessing the arbitrage opportunities.
The scheme will hold minimum of 65 per cent in equities and equities related instruments, derivatives including index futures, stock futures, Index and stocks options etc and 0 to 35 per cent in debt and money market instruments(including investment in securitized debt).
Since arbitrage funds maintain an average exposure of higher than 65% in equity & equity related instruments, they are treated as equity funds for taxation purpose. Their holding period for long-term capital gain is one year& from the start of April 2018, long-term capital gain from equity is taxed at 10 per cent. (For Investors having capital gains of Rs 1 lakh & above) Mostly, investors have a higher interest in arbitrage funds, from the time long-term holding period for debt funds was augmented from one to three years.
The fund is beneficial for the investors who are looking for income through arbitrage between cash and derivatives and capital appreciation with moderately low risk appetite. Also, the investors who have medium to long term investment horizon and are looking for returns with taxation benefit like equity-oriented funds.