Mahindra Manulife Arbitrage Yojana: Investment Strategy, Features & Benefits

Mahindra Manulife Arbitrage Yojana

Mahindra Manulife Mutual Fund (MMMF) has launched an open-ended arbitrage hybrid fund that will invest in equity and equity related securities. Given the sobriquet of Mahindra Manulife Arbitrage Yojana, the new fund offer (NFO) is open for investors to invest between August 12 and August 19. The scheme will however reopen for repurchase and continuous sale from August 25

Here we shall share everything about the Arbitrage Yojana by Mahindra Manulife MF –

Mahindra Manulife Arbitrage Yojana – An Overview

An arbitrage fund is a type of mutual fund that takes benefits of ‘price differences’ between asset in different markets to lock-in profits. This hybrid fund uses various strategies to detect arbitrage opportunities across market and offer profits even in volatility markets at a relatively lower risk in various scenarios –

  • Exchange Arbitrage (Buy in Exchange ‘A’ and Sell in Exchange ‘B’ to make profits)
  • Basket of Stock Arbitrage (Buy a Basket of Stock in Index X and sell it in Index X Future)
  • Cash & Carry Arbitrage (Buy a stock in ‘spot market’ and sell in ‘futures market’)
  • Corporate Action Driven Arbitrage (Buying stock at a premium or discounted rate)

The newly launched Arbitrage Yojana by Mahindra Manulife would under defensive circumstances would invest around –

  • 0 – 65% in equity as well as equity related instruments including equity derivatives
  • 35 – 100% in money market securities (including TREPs – tri-party repo, reverse repo) and debts
  • around 10% in units issued by InvITs and REITs

under normal circumstances would invest in the range of

  • 65-100% in equity and equity related instruments including equity derivatives
  • around 35% in money market securities (including TREPs – tri-party repo, reverse repo) and debts

Benchmark: Nifty 50 Arbitrage Index TRI

What is the Investment Strategy of Mahindra Manulife Arbitrage Yojana?

  • Investing in arbitrage position between cash and futures trading on exchanges,
  • Investing in basket of stocks, and short the corresponding futures against it,
  • Deriving higher returns from the implied cost of carry between the underlying and the derivatives market
  • When the arbitrage spreads are low, the scheme invests in high quality debt papers for income generation.

Features of Arbitrage Yojana by Mahindra Manulife Mutual Fund

Fully Hedged Portfolio – The arbitrage opportunity fund by Mahindra Manulife Mutual Fund is managed not only to find suitable trading opportunities but also to reduce exposure to various risks.

Lower Risk – Now that each of the stock is bought as well as sold concurrently by locking in returns, there is lower risk involved with both short-term as well as longer-term investments. 

Better Post Tax Returns – When compared to short term debt funds like liquid funds, the arbitrage opportunity fund gives better post tax returns

Investment Across Market Cycles – Since there is no directional call, investors get to invest across different market cycles

Who Can Invest in this Arbitrage Fund Scheme?

  • Investors looking for relatively lower risk investments for short term
  • Investors looking to benefit from tax efficiencies
  • Investors looking to park money in a scheme relatively less impacted by market volatility
  • Investors looking for income through arbitrage opportunities between cash and derivative market and arbitrage opportunities within the derivative segment.

Should You Invest?

As the arbitrage strategy focuses on protecting downside risk by capturing market spreads, if as an investor you want to invest something that faces moderately lower risk in comparison to other hybrid/equity funds, you can explore the income opportunities in the scheme. Nevertheless, being one of the least volatile hybrid schemes, you get to benefit from the price difference between markets. Moreover, the arbitrage fund is tax efficient in comparison to liquid/debt funds.

For investment details, you can visit the Mahindra Manulife Arbitrage Yojana website and meanwhile also consult your financial advisor whether such schemes are suitable to you or not.

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Deepti Verma is a Political/Social Writer with an opinion on almost everything! Follow @universal_rover