Mirae Asset Arbitrage Fund NFO – Should you invest?
Mirae Asset Arbitrage Fund NFO Review
Mirae Asset MF has come up with an arbitrage fund that would open for subscription from 3rd Jun, 2020. Arbitrage Funds aim to provide income over the short term by investing predominantly in arbitrage opportunities in the cash and derivative segments. Experts believe that investing in arbitrage funds is better than liquid funds or overnight funds. What are the issue details of the Mirae Asset Arbitrage Fund? Should you invest in Mirae Asset Arbitrage Fund or avoid?
Also Read: Top Index Mutual Funds in India
Issue details of Mirae Asset Arbitrage Fund (NFO)
This is an open-ended mutual fund equity scheme.
This scheme would open for subscription on 3rd June, 2020.
This scheme would close for subscription on 12th June, 2020.
Since this is an open ended scheme, it would again open for subscription after 5 business days from the date of allotment of MF units after the NFO period. It would reopen again from 22nd June, 2020 for fresh subscriptions.
This scheme is available in both regular and direct plans.
This plan offers both growth option and dividend option.
This scheme is available for lump sum and SIP investment.
Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off for lump sum investments.
Minimum investment is Rs 1,000 per month for monthly SIP and for a tenure of 5 months.
The NAV of the NFO is Rs 10 per unit now during initial subscription.
There is no entry load to invest in this mutual fund scheme.
There is an exit load of 0.25% if the mutual fund units are redeemed within 30 days from the date of allotment.
This scheme is classified as MODERATELY LOW risk scheme.
Scheme total expense ratio (TER) is estimated at a maximum of 2.25%, however it would reduce based on the increase in the AUM.
How do Arbitrage Mutual Funds work?
Here are few examples which would help you to understand this better.
Example-1: Stock price difference between the stock exchanges
Let’s say Reliance share price is trading at Rs 1,400 per share on NSE and at Rs 1,414 per share on BSE. If the fund manager of an arbitrage fund spots this opportunity, then they buy shares from NSE and simultaneously sells them on the BSE. This allows him to make a profit of Rs 14 per share (minus transaction costs) without any risks.
Example-2: Stock Price difference between the cash and futures markets
Let’s say that the same Reliance share trades at Rs 1,400 in the cash market and Rs 1,428 in the futures market. The fund manager of the arbitrage fund buys shares from the cash market and creates a futures contract to sell the shares at Rs 1,428. At the end of the contract expiry period, they sell the stocks in the futures market and books a profit of Rs. 28 per share (minus transaction costs) without taking any risks.
Let me also share you how these have performed compared to liquid funds or overnight funds.
What is the investment objective and strategy of this Mirae Asset Arbitrage Fund NFO?
The investment objective of the MF scheme is to generate income by investing in arbitrage opportunities in the cash and derivative segments of the equity markets and the arbitrage opportunities available within the derivative segment and by investing the balance in debt and money market instruments.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
Who is eligible to invest in this mutual fund scheme?
The following are eligible to invest in this fund.
1) Resident individuals, either singly or jointly.
2) Minors through Parents/Lawful Guardian.
3) Hindu Undivided Family (HUF) through its Karta.
4) Partnership Firms in the name of any one of the partners.
5) Proprietorship in the name of the sole proprietor.
6) Companies, Body Corporate, Societies, Association of Persons, Body of Individuals, Clubs and Public Sector Undertakings registered in India if authorized and permitted to invest under applicable laws and regulations.
Complete list of eligible participants who can invest can be checked in prospectus of this new fund offer.
Who is the Fund Manager of Mirae Asset Arbitrage Fund NFO?
The Fund Managers are:
1) Jignesh Rao and Jigar Shethia (Equity Portion) and
2) Mahendra Jajoo (Debt Portion).
What is the benchmark for this scheme?
The benchmark for this scheme is NIFTY 50 Arbitrage Index.
What is the allocation pattern in this mutual fund scheme?
This fund investment pattern is as follows:
1) It invests 65% to 90% in equity and equity linked Instruments. The risk profile in this segment is medium to high.
2) It invests 65% to 90% in Derivatives including Index Futures, Stock Futures, Index Options and Stock Options. The risk profile in this segment is medium to high.
3) It would invest 10% to 35% in Debt securities and Money Market Instruments (including the margin money deployed in derivative transactions). The risk profile in this segment is low to medium.
4) It would invest 0% to 10% in units issued by REITs and InvITs. The risk profile in this segment is medium to high.
Why to invest in Mirae Asset Arbitrage Fund?
Here are a few reasons to invest in such funds.
1) Arbitrage funds are low volatility in returns.
2) There is no equity exposure risk as fund manager is buying in one market and selling in another market and making profits.
3) Returns of Arbitrage funds are tax efficient. They are treated like in equity funds, i.e. STCG at 15% and LTCG at 10% without indexation. Hence, these provide better post tax returns.
Some risk factors to consider before investing in such funds
One should consider some of these risk factors / negative factors before investing.
1) Extreme conditions in Indian equity markets can cause temporary disruptions. A sharp market correction in March (due to Covid-19) resulted in stock futures trading at a discount rather than a premium to their spot price which ate into the returns of arbitrage funds.
2) Since the spot and futures positions of arbitrage funds are market-to-market, there are situations where NAV falls. One needs to hold for 3-6 months to get good returns from such funds.
How is the Performance of existing Arbitrage Funds in India?
Now, let us look at some of the best performing arbitrage funds in India. Most of the arbitrage funds gave 5.5% to 6.2% returns in the last 1 year pre-tax.
|Fund Name||3 Mth Return||6 Mth Return||1 Yr Return|
|Tata Arbitrage Fund||1.6%||3.3%||6.2%|
|Edelweiss Arbitrage Fund||1.5%||3.1%||6.0%|
|BNP Paribas Arbitrage Fund||1.4%||3.1%||6.0%|
|L&T Arbitrage Opportunities Fund||1.3%||3.0%||5.9%|
|Aditya Birla Sun Life Arbitrage Fund||1.2%||2.8%||5.7%|
Also Read: Best Liquid Mutual Funds to invest in 2020
Should you invest in the Mirae Asset Arbitrage Fund?
The Mirae Asset Arbitrage Fund invests based on arbitrage opportunities. These funds can provide better returns than liquid funds or overnight funds. If you are low risk to moderate risk investor and willing to invest for 6 month period and expecting better returns than bank FD or liquid or overnight funds, then you can consider investing in such funds. Alternatively, you can invest in some of the top performing arbitrage funds indicated above as these have proven the performance in the past for short to medium term.
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Mirae Asset Arbitrage Fund NFO Review