Arbitrage Funds: Is Your ₹10K Safer Than an FD?

Zerodha Fund House has launched an arbitrage mutual fund. These funds earn low but stable returns by exploiting tiny price gaps between stock and futures markets — and get taxed like equity funds, making them smarter than FDs for short-term parking.

Here's what happened: Zerodha Fund House launched the Zerodha Arbitrage Fund, an open-ended scheme that simultaneously buys stocks in the cash market and sells equivalent futures contracts to lock in small, near-risk-free price differences.. The fund is classified as an equity mutual fund by SEBI rules since it maintains at least 65% exposure in equity and equity-related instruments, making gains eligible for equity taxation.. Arbitrage funds are considered low-risk because each stock position is hedged with a matching futures contract — the fund profits from the spread, not from market movement direction..

What you should do: Compare post-tax returns: calculate your FD return after subtracting your income tax slab rate, then check if a 6–7% arbitrage fund return taxed at 12.5% LTCG leaves more in your pocket.. Check your investment horizon — arbitrage funds work best for money you can park for at least 3–12 months; for less than 3 months, a liquid fund may still suit you better.. Verify the fund's exit load before investing — most arbitrage funds charge a small exit load (typically 0.25%) if you redeem within 30 days, so plan your withdrawal timing in advance..

If you've already used up your ₹1.5 lakh 80C limit, arbitrage funds are one of the most tax-efficient places to park surplus cash in the 20–30% tax slab — no fixed maturity, no TDS deduction at source.

For readers weighing their credit and loan options, our personal loan guide and CIBIL score resources put this update in context.