Business Daily from THE HINDU group of publications
Friday, May 25, 2007
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Business Daily from THE HINDU group of publications Friday, May 25, 2007 ePaper |
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Mutual Funds Markets - Mutual Funds Nilanjan Dey
Kolkata May 24 Far away from the hurly-burly of the stock market, a section of the investment fraternity has turned its attention sharply to arbitrage funds, thanks to the kind of returns some of these have generated in recent times. While it is too early to state whether arbitrage products have already started to pull in more money from investors, the market is increasingly referring to the double-digit returns that a few have delivered in the past weeks. A few of the others have provided returns in the range of 7-10 per cent, annualised. A look at the latest scorecard suggests that a number of these funds have been able to surpass expectations in terms of risks and returns. The ones that have done better, based on a review of NAVs pertaining to May 16, include ICICI Prudential MF's Equity & Derivatives Fund, JM Equity & Derivatives Fund and SBI Arbitrage Opportunities Fund.
Relatively safe
Arbitrage, which relates to the process of gaining from the spread between cash and derivatives, is said to be a compelling proposition because of safety and returns. Arbitrage funds are often considered relatively safe, as equity positions in the cash market are hedged in the derivatives market. As for returns, potential gains may well be higher compared to those delivered by investments carrying similar risk profiles, some quarters feel. Distribution firm SKP Securities, which has done the review, is of the view that the funds in question are in a position to outpace several other options on two key fronts - returns and tax efficiency. "Returns from liquid and other short-term investments are around 8 per cent... also these are not tax efficient after the recent increase in dividend distribution tax. Arbitrage funds beat available options in terms of returns and are at the same time tax efficient too, with short term capital gains tax being only 10 per cent and zero long term capital gains tax," the intermediary has maintained. However, it feels investors should keep an eye on exit loads. The current exit load structures present a mixed picture. A few, like ICICI Pru Blended Plan, charge 0.25-0.5 per cent for periods less than 30 days, while a few others, like UTI SPrEAD Fund, levy 0.75 per cent for less than 180 days (for amounts over Rs 2 crore). UTI MF, which for its part states that its product aims at low volatility of returns by identifying arbitrage opportunities and low credit risk short-term debt securities, has said that the higher volatility in the stock markets has resulted in `healthy returns'. The fund house had expected the trend to continue.
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