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What Is An Arbitrage Fund & Who Should Invest?

Arbitrage funds can be difficult to understand. This blog contains a simple explanation of how an arbitrage fund works. We’ll also look at the returns generated by an arbitrage fund compared to other mutual funds.
April 18, 2024
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Products are valued differently in different markets. The price difference across markets & geographies can be used to generate profit. That’s the underlying principle of an arbitrage fund. 


Let’s simplify arbitrage funds and tell you how the fund works to deliver returns for its investors. Along the way, we’ll also take a look at what “arbitrage opportunities” mean. 


Read on till the end of the blog to see the arbitrage funds currently being recommended by Cube Wealth’s Mutual Fund Advisor, Wealth First. 


Let’s begin by answering the question, what is an arbitrage fund?


What Is An Arbitrage Fund?


An arbitrage fund is theoretically a hybrid or balanced fund. This implies that an arbitrage fund invests in both debt and equity. But equity investments represent at least 65% of the fund’s portfolio.


Arbitrage funds leverage stock price differentials to generate returns. This is known as an arbitrage opportunity. Usually, the stock price differential is very low so the fund manager has to trade frequently.


How Does An Arbitrage Fund Work?


There are two primary avenues that offer arbitrage opportunities. Let’s look at each avenue in more detail. 


Arbitrage Opportunity #1: Spot And Futures

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