Arbitrage funds have been seeing a steady rise in investments over the past three years. If you are planning to invest in an arbitrage mutual fund too, make sure that the timing is right! Here are few things to consider before investing.
There are plenty of opportunities and nuances that are involved in the investment and stock market. Most of the mutual funds are managed by fund managers who are looking to find the right funds and market to invest in and get good returns. As an investor, you will need to choose the fund and market carefully after due consideration and research. Another thing you should look out for is arbitrage funds that might be available for you.
How do you know when to Invest in an Arbitrage Mutual Fund?
These kinds of funds are short-lived. It can be hard to give a particular time to it because these mutual funds come into being due to mispricing of the securities. If you are investing in mutual funds, you should keep your needs and goals in mind to ensure that you achieve them in the required period. Arbitrage funds can be a great way of getting the same and with low risk too.
Currently, few funds are dedicated for especially arbitrage mutual funds exclusively.
Advantage of the markets
If you are looking to make the most of the different markets available, it is a good idea to invest in an arbitrage mutual fund. In this way, you can find securities at the cash market at a lower rate as compared to the other markets. This allows you to buy it and sell it at a higher price in the futures market, giving your portfolio better returns!
Term
If you are dealing with many short-term funds for wealth creation, an arbitrage mutual fund is a good idea. This is because the windows of opportunities in these are very small and rare. Once the word gets around about the mispriced securities, it will lead to more sales of the securities thus increasing its price. So, you might not lose your investment on it, but you will not gain better returns either, which is why it is known as a riskless profit!
Only profit
A good time to invest in arbitrage funds is when you are looking purely to increase your profits and nothing else. If you are looking to better your portfolio or diversify the investments, this is not the right fund to invest in.
Tax efficient
If you have short-term investments and funds in hand, it is a great idea to invest in arbitrage funds. The surplus money is then parked in a tax efficient way, and it surely works better than putting it in a fixed deposit. So if you are inclined towards short-term deposits and investment, try to invest in arbitrage mutual funds during this duration!
Finding the right time to invest in an arbitrage mutual fund can be hard. The interest of your mutual fund needs to line up to get great returns on the money you invest. Moreover, arbitrage funds work in the short term and have small windows of opportunities so the better you plan, the better gains you will get on the same!