Arbitrage Funds Lead Hybrid Pack: 3.35% YTD Return in 2026
By Market Desk
Arbitrage funds lead hybrid mutual funds in 2026 with a 3.35% YTD return, outperforming other categories amidst market volatility. Learn their strategy.
Arbitrage funds have established themselves as the top-performing hybrid mutual fund category in 2026, posting a 3.35% year-to-date (YTD) return amidst fluctuating equity markets.
This performance significantly outpaces other hybrid fund types. Income Plus Arbitrage Funds, for instance, recorded a 3.28% YTD return, while several other categories lagged notably.
Hybrid Fund YTD Performance
- Income Plus Arbitrage Funds: 3.28%
- Conservative Hybrid Funds: Below 1.5%
- Multi Asset Allocation Funds: Below 1.5%
- Equity Savings Funds: Below 1.5%
- Aggressive Hybrid Funds: Negative returns
- Dynamic Asset Allocation Funds: Negative returns
These funds utilize a strategy of simultaneously acquiring securities in the cash market and selling equivalent ones in the derivatives market, thereby capitalizing on price discrepancies. Their approach largely hedges equity positions, making them less vulnerable to significant stock market volatility compared to traditional equity funds.
Unhedged portions of these portfolios are typically allocated to debt and money market instruments. Under SEBI regulations, arbitrage funds are classified as hybrid schemes, requiring a minimum of 65% investment in equity and equity-related instruments, which allows them to be treated as equity-oriented mutual funds for tax purposes under the Income-tax Act.
Top Arbitrage Fund Returns
In terms of one-year returns, the Quant Arbitrage Fund led the category, while Tata Arbitrage Fund secured the highest annualised return over three years.
One-Year Returns
- Quant Arbitrage Fund: 7.57%
- WhiteOak Capital Arbitrage Fund: 7.10%
- Motilal Oswal Arbitrage Fund: 7.06%
Three-Year Annualised Returns
- Tata Arbitrage Fund: 7.64%
- Kotak Arbitrage Fund: 7.63%
- Invesco India Arbitrage Fund: 7.61%
The returns generated by arbitrage funds are directly contingent on the availability of arbitrage opportunities, which can fluctuate with prevailing market conditions. Investors should carefully assess a scheme’s investment objectives, portfolio characteristics, risks, and historical performance before making any investment decision.