Many of us explore arbitrage funds because of their tax advantage over debt mutual funds. However, can arbitrage funds give negative returns? YES, they can!!
Investors who explore arbitrage funds are aware about the fact that the tax treatment of these funds is similar to that of equity. For holdings of less than a year, the Short-Term Capital Gains (STCG) tax rate is 15%, while for holdings exceeding a year, the Long-Term Capital Gains (LTCG) tax rate is 10% (applicable on gains exceeding Rs.1 Lakh of LTCG).
As a result, many people are choosing to invest in arbitrage funds instead of traditional debt instruments like Bank FDs or Debt Mutual Funds. It is worth mentioning that currently debt mutual funds are taxed in a similar manner to Bank FDs. This means that the tax treatment will vary based on your tax bracket, regardless of whether you hold the investment for a short or long period of time.
What are arbitrage funds?
According to the SEBI definition, an arbitrage fund is a fund…