Zerodha Fund House on Wednesday rolled out the Zerodha Arbitrage Fund, an open-ended equity scheme designed to capitalise on arbitrage opportunities between the cash and derivatives segments.<\/p>\n
The New Fund Offer (NFO) features a minimum subscription threshold of \u20b95,000. Target investors include those seeking a low-volatility venue to park surplus funds for relatively brief holding periods compared to conventional equity funds.<\/p>\n
Unlike directional equity schemes, an arbitrage fund does not rely on market rallies to generate yields. Instead, it captures temporary price discrepancies for identical securities across the spot and futures markets.<\/p>\n
For instance, if a stock trades at a specific price in the spot market while its corresponding futures contract trades at a premium, the fund simultaneously purchases the underlying stock and sells the futures contract. Once the two prices converge at contract expiration, the locked-in price spread\u2014minus transaction expenses\u2014represents the return.<\/p>\n
Zerodha Fund House specified that the scheme will maintain a minimum 65% allocation toward equity and equity-linked derivatives. In periods where viable arbitrage spreads shrink or become scarce, the remaining portfolio may be allocated to short-term debt instruments in alignment with its Mandate.<\/p>\n
This approach insulates the portfolio from direct equity market swings. However, returns are not guaranteed and fluctuate based on market volatility, available spreads, execution costs, and debt market yields.<\/p>\n
A key driver behind the popularity of arbitrage funds for short-term liquidity management is their favourable tax classification. Because they maintain a minimum 65% equity exposure, they are taxed as equity-oriented mutual funds:<\/p>\n
For individuals in higher tax brackets, this tax structure often yields better net returns than traditional short-term fixed-income products. Even so, investors must weigh projected returns, investment horizons, liquidity demands, and risk parameters before reallocating capital.<\/p>\n
Arbitrage funds suit investors looking to park temporary cash reserves over a multi-month horizon without taking on full equity market exposure.<\/p>\n
However, these vehicles are not risk-free substitutes for fixed deposits or conventional debt products. Yields remain variable, and potential investors should evaluate exit loads, expense ratios, and underlying trading costs prior to committing funds.<\/p>\n
Zerodha Fund House operates as a joint venture between trading platform Zerodha and investment firm smallcase. Currently managing index funds, exchange-traded funds (ETFs), and fund-of-funds strategies, the asset management company serves a customer base exceeding 12.5 lakh investors.<\/p>\n
In June, on-demand convenience platform Swiggy tied up with Zerodha Fund House to enable delivery partners to save a part of their earnings with investments into mutual funds through its rider app.<\/p>\n
Delivery partners can save a part of their earnings with investments into mutual funds, starting from \u20b9100, the company had said.<\/p>\n
The investment is done directly in the schemes of Zerodha Fund House, and the delivery partners can manage investments directly via Zerodha Fund House's WhatsApp channel, it added.<\/p>\n
Zerodha Fund House CEO Vishal Jain had said the partnership with Swiggy is another example of how technology can make investing simple and accessible.<\/p>\n