Zerodha Fund House has introduced its new Arbitrage Fund for investors who want a safe way to manage short-term cash. The minimum investment is ₹5,000, making it suitable for retail investors.
The fund captures price differences between the cash market and the futures market. For example, if a stock trades at a higher price in the futures market compared to the spot market, the fund buys the stock and sells the futures contract. When prices converge, the difference becomes the return after expenses.
The scheme will keep at least 65% of its portfolio in equity and derivatives, while the rest may be invested in short-term debt instruments. This helps reduce exposure to direct equity market risks.
Taxation is a key benefit. Since it qualifies as an equity-oriented fund, short-term gains within 12 months are taxed at 20%, while long-term gains after 12 months above ₹1.25 lakh are taxed at 12.5%. This often results in better post-tax returns compared to traditional debt products.
The fund is suitable for investors who want to park surplus funds for a few months without taking full equity risk. However, returns depend on market spreads, costs, and debt yields. Zerodha Fund House, a joint venture between Zerodha and smallcase, already serves more than 12.5 lakh investors with index funds, ETFs, and fund-of-funds strategies.
