Arbitrage Funds 2026: Kotak & Nippon India Tax Guide
By Market Desk
Explore top arbitrage mutual funds for August 2026: Kotak Arbitrage Fund & Nippon India Arbitrage Fund. Understand LTCG & STCG tax implications.
If you’re looking for smart investment options for August 2026, arbitrage mutual funds like the Kotak Arbitrage Fund and Nippon India Arbitrage Fund are worth considering. These two schemes remain the top recommendations, consistent with the previous month’s list.
Arbitrage funds are designed to capitalize on small price differences that pop up between the cash and derivatives markets. Fund managers actively seek out these discrepancies, investing in debt securities or equities if no such opportunities are immediately available.
Understanding Your Tax Snapshot
When it comes to taxes, these funds are treated similarly to equity mutual funds. This means your investments held for more than one year face a Long Term Capital Gains (LTCG) tax of 12.5%.
If you hold them for less than a year, you’ll incur a Short Term Capital Gains (STCG) tax of 20%. Knowing these percentages helps you plan your investment horizon.
Why Market Volatility Matters for You
Stock market volatility can actually be quite advantageous for arbitrage funds, as it tends to create more opportunities for them to exploit price differences. The returns from these funds are not directly influenced by the prevailing interest rate regime.
This makes them a suitable option if you prefer to avoid making calls on interest rate movements. However, be aware that periods of consistent market movement in one direction might offer limited arbitrage opportunities.
How Funds Are Picked: The ETMutualFunds.com Methodology
ETMutualFunds.com uses a clear methodology to shortlist these hybrid mutual fund schemes. Several parameters guide their recommendations.
They look at mean rolling returns over the last three years to assess performance. Consistency is measured by the Hurst Exponent, which assesses the randomness of the NAV series.
Downside risk is calculated based on negative returns, helping to understand potential losses. Outperformance is determined using Jensen’s Alpha for the equity portion and comparing fund return minus benchmark return for the debt portion.
Finally, a minimum asset size of Rs 50 crore is required for these hybrid funds to be considered. This thorough process helps ensure the recommended funds meet specific criteria.