Why Edelweiss Arbitrage Fund stands out as a safe, tax-efficient parking avenue for investors; check details

Edelweiss Arbitrage Fund has positioned itself as a steady parking avenue for investors seeking low-volatility returns, particularly during uncertain or choppy markets. Designed to capitalise on temporary price differences in the cash and futures markets, the fund follows a fully hedged arbitrage strategy, aiming to deliver stable, predictable gains while enjoying equity-style tax treatment. With significant assets under management and consistent performance over the years, the scheme has emerged as one of the notable offerings in the arbitrage category.

How the fund generates returns

Arbitrage funds such as Edelweiss Arbitrage Fund operate on the principle of exploiting mispricing between the spot and futures markets. The investment team identifies stocks that trade at slightly different prices across these segments—typically cheaper in the cash market and marginally higher in the futures market.

The fund buys the stock in the spot market and simultaneously sells futures contracts of the same stock. Since both trades happen together, the spread between the two prices locks in the profit. When the futures contract expires, the prices converge, and the fund earns the predetermined difference.

Because futures positions hedge the fund’s exposure, market direction becomes irrelevant. Whether the market rises or falls, the spread remains intact, making the approach largely market-neutral.

Portfolio composition and risk profile

Edelweiss Arbitrage Fund, like all arbitrage schemes, must maintain at least 65% of its corpus in equity and equity-related instruments to qualify as an equity-oriented fund. This structure ensures favourable tax treatment, especially for investors in higher tax slabs.

When arbitrage opportunities are limited—typically during low-volatility phases—the fund allocates the remaining portion to low-risk debt and money market instruments. This helps preserve stability without compromising liquidity.

Given its hedged positions, the fund exhibits significantly lower volatility compared to diversified equity funds. It is therefore favoured by investors seeking a safer alternative to liquid and ultra-short-term debt funds, especially when debt-market yields are unattractive or taxation rules favour equity-oriented products.

Performance snapshot

As of November 28, 2025, the NAV of the Edelweiss Arbitrage Fund – Regular Growth Plan stands at ₹19.82. The fund has delivered the following trailing returns:

1-year: 6.46%

3-year: 7.00%

5-year: 5.73%

Since inception: 6.16%

These figures compare favourably with category averages of 6.28%, 6.75%, and 5.45% over the 1-year, 3-year, and 5-year periods, respectively. The marginal outperformance indicates efficient execution of arbitrage opportunities and strong risk management.

Fund size and costs

The fund manages a sizeable Rs 16,053.09 crore in Assets Under Management (AUM) as of August 31, 2025, reflecting strong investor confidence and steady inflows.

The expense ratio for the Regular Plan is 1.07% (as of October 9, 2025). While this is higher than direct plans, it remains in line with regular-plan expense structures within the category.

The scheme levies an exit load of 0.1% if redeemed within 30 days, designed to discourage very short-term trading and to ensure stability in the portfolio.

Suitability and use cases

Edelweiss Arbitrage Fund is best suited for:

Short-term parking of funds (1–6 months) with low capital risk.

Investors seeking equity taxation benefits without taking equity-market risk.

Volatile markets, when arbitrage spreads tend to widen, improving potential returns.

Conservative investors who prioritise capital preservation alongside modest, predictable gains.

Minimum investments remain simple and accessible:

Lump sum: Rs 100

Additional purchase: Rs 100

SIP: Rs 100

Bottom Line

For investors looking for stability, liquidity, and efficient post-tax returns, Edelweiss Arbitrage Fund offers a compelling balance. Its consistent performance, large AUM, and disciplined arbitrage strategy make it a reliable choice for short-term allocation—particularly in uncertain markets where volatility-driven spreads work to its advantage.