Best Arbitrage Mutual Funds in India 2026: Top 10 & Guide
What Arbitrage mutual funds are, who should invest, key risks, and the top 10 funds with returns and risk data.
Arbitrage mutual funds try to profit from small price differences between the cash market and the futures market, which makes them lower risk than most equity-oriented funds. They suit investors parking money for the short to medium term. This guide covers who should invest, benefits, risks, and the top 10 arbitrage funds from our data.
Key takeaways
- Arbitrage funds buy and sell securities across markets to capture small price differences, and benefit from volatility.
- They are hybrid funds treated as equity funds for tax, as they invest at least 65% of assets in equity shares.
- They suit low-risk investors with short to medium-term goals, or those parking surplus cash.
- Risks include flat markets, high expense ratios and small interest rate and credit risk.
- The top 10 funds below are ranked by an internal score, with return and risk numbers shown.
What are arbitrage mutual funds?
Arbitrage funds buy and sell securities in different markets so that investors profit from price differences. The cash market settles transactions on the spot, while the futures market lets you buy or sell at a predetermined price on a future date. Because the price differences are small, an arbitrage fund must execute a large number of trades to see substantial gains.
Who should invest in arbitrage mutual funds?
They suit low-risk investors. Because each security is bought and sold at the same time, the transaction is practically free of the dangers of long-term investing, and arbitrage opportunities keep appearing as long as the market moves in either direction.
What should you consider before investing?
- Returns: they are a blend of equity and debt in a volatile market, so returns are only moderate.
- Tenure: since the funds carry exit loads, plan to stay invested for at least 3 to 6 months.
- Goals: they suit short to medium-term goals, for example parking surplus money for an emergency fund instead of leaving it in a savings account.
Advantages of arbitrage mutual funds
- Minimal risk from low-risk buy-and-sell opportunities.
- Potentially higher returns than a savings account, with stable returns even in volatile markets.
- Taxed as equity funds because at least 65% of assets are in equity shares.
- Two ways to invest: lump sum or SIP.
Risks of arbitrage mutual funds
- Interest and credit risk: these exist because some assets go into debt, but they are minor since the debt is typically term deposits or very short-term.
- Flat markets: when markets trade flat, arbitrage chances are limited and returns can fall below average.
- High expense ratios, since effective arbitrage requires many trades.
How are Arbitrage mutual funds taxed?
Gains from Arbitrage funds are subject to capital gains tax as equity funds. The rates and holding-period rules depend on the fund type and can change, so check the current rules or speak to a tax advisor before you invest.
Top 10 Arbitrage mutual funds ranked by an internal score
These are the top 10 Arbitrage funds from our data, ranked by Invo Wealth's internal fund-quality score. The score itself is not shown, only the return and risk numbers behind it. A "--" means the fund has not completed that period or the data is unavailable.
Returns across 6 months to 5 years
Performance data as of 5 September 2026.
| Fund | 6M CAGR | 1Y CAGR | 3Y CAGR | 5Y CAGR |
|---|---|---|---|---|
| Kotak Arbitrage Fund | 5.75% | 5.90% | 6.86% | 6.25% |
| Invesco India Arbitrage Fund | 5.61% | 5.89% | 6.76% | 6.27% |
| SBI Arbitrage Fund | 5.52% | 5.76% | 6.72% | 6.25% |
| quant Arbitrage Fund | 6.49% | 6.78% | -- | -- |
| HSBC Arbitrage Fund | 5.60% | 5.79% | 6.57% | -- |
| Edelweiss Arbitrage Fund | 5.64% | 5.79% | 6.71% | 6.10% |
| UTI - Arbitrage Fund | 5.50% | 5.83% | 6.79% | 6.06% |
| WhiteOak Capital Arbitrage Fund | 6.02% | 6.15% | -- | -- |
| ICICI Prudential Arbitrage Fund | 5.62% | 5.84% | 6.73% | 6.07% |
| BARODA BNP PARIBAS ARBITRAGE FUND | 5.02% | 5.35% | 6.44% | -- |
Risk and consistency metrics
| Fund | ISIN | Volatility | Max drawdown (3Y) | Sortino ratio |
|---|---|---|---|---|
| Kotak Arbitrage Fund | INF174K01302 | 1.20% | -0.32% | -0.19 |
| Invesco India Arbitrage Fund | INF205K01122 | 1.19% | -0.36% | -0.32 |
| SBI Arbitrage Fund | INF200K01156 | 1.21% | -0.36% | -0.36 |
| quant Arbitrage Fund | INF966L01DZ1 | 1.37% | -0.39% | -0.24 |
| HSBC Arbitrage Fund | INF917K01QL8 | 1.23% | -0.33% | -0.55 |
| Edelweiss Arbitrage Fund | INF754K01EF3 | 1.19% | -0.29% | -0.39 |
| UTI - Arbitrage Fund | INF789FB1RJ0 | 1.17% | -0.33% | -0.28 |
| WhiteOak Capital Arbitrage Fund | INF03VN01928 | 1.20% | -0.33% | -1.08 |
| ICICI Prudential Arbitrage Fund | INF109K01BF6 | 1.22% | -0.34% | -0.35 |
| BARODA BNP PARIBAS ARBITRAGE FUND | INF251K01ON3 | 1.24% | -0.31% | -0.71 |
Arbitrage funds usually show very low volatility and drawdown, so small differences in CAGR and costs matter more here.
How to invest in Arbitrage mutual funds
You can invest in these funds using the Invo Wealth app. Sign up, get complete portfolio insights and start investing in mutual funds that actually suit you.
Conclusion
Arbitrage funds offer low-risk, equity-taxed returns for short and medium-term money. Returns can be modest when markets move sideways.
Frequently asked questions
What are arbitrage funds?
Arbitrage funds buy and sell the same asset in two different markets at the same time to profit from the price difference between them.
Why invest in arbitrage mutual funds?
Their benefits include low risk, lower volatility, suitability for short-term investors and tax efficiency, since they are treated as equity funds for tax.
How are arbitrage funds different from bank FDs?
Arbitrage funds are equity-focused mutual funds that help conservative investors benefit from volatile markets, while FDs earn a fixed interest rate until maturity. They are different products with different outcomes.
Are arbitrage funds tax-free?
No. They are not tax-free, although they are treated as equity funds for tax, so check the current rules.
How can I invest in arbitrage mutual funds?
You can invest through a SIP or a lump sum. To invest in these funds, you can use the Invo Wealth app: sign up, get portfolio insights and start investing.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully. This article is for education only and is not investment advice. Past performance does not guarantee future returns. Invo Wealth is an AMFI-registered mutual fund distributor (ARN-368528).