The Hindu Business Line : JM Financial plans to launch full-fledged arbitrage fund

JM Financial Asset Management Pvt Ltd is launching a full-fledged arbitrage fund on Thursday, the first by a fund house after SEBI allowed mutual funds 100 per cent participation in derivatives market late last year.

The `JM Arbitrage Advantage Fund' will allocate 80 per cent of its corpus for taking arbitrage positions in stock derivatives and the remaining 20 per cent will be used for margin requirements, said Mr Biren Mehta, Fund Manager at JM Financial Asset Management.

SEBI had relaxed the guidelines for mutual funds exposure to derivatives in September last year, making them at par with FIIsin respect of position limits in index futures, index options, stock options and stock futures contracts.

"The mutual funds will be considered as trading members like registered FIIs and the schemes of mutual funds will be treated as clients like sub-accounts of FIIs," according to the new SEBI regulation.

To hedge completely

Mr Mehta said the fund proposes the scheme to be completely hedged and "no open or directional positions" will be taken.

Considering that JM Financial's first arbitrage fund (JM Equity & Derivative Fund) launched in February 2005, which follows SEBI's earlier guidelines restricting participation in derivatives by mutual funds to 50 per cent, gave returns of about 7 per cent per annum, the fund is confident of the new scheme generating about 9 per cent returns, he said.

The scheme will be benchmarked against `Crisil Liquid Index Fund'.

The NFO will close on June 30.

According to Mr Mehta two more derivative products are in the pipeline from the JM Financial stable.

"After the SEBI relaxation, a new asset class has opened up for mutual funds," he said.

More Stories on : New Fund Offer | Derivatives Markets

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