Invest here when the market fluctuates, you will earn a lot.

New Delhi. The stock market is seeing a lot of volatility these days. The India Volatility Index (India VEX) has risen in the past few days. Due to which it is feared that the fluctuations in the market will not stop yet. India VEX reflects potential market fluctuations in the near term. Today i.e. on May 16, it has crossed 20. This is the highest level for this index since January 30, 2023. India VAX usually rises before important occasions like general elections. It also jumped in 2019 and 2014.

Market volatility has a direct impact on investors’ returns. But, even in the ups and downs of the market, you can make a profit by investing in one place. You can invest money in arbitrage fund at this time. Arbitrage funds use volatility to generate returns. Notably, investors are increasingly interested in arbitrage funds. In the month of April, there was a net investment of Rs 16,000 crore in arbitrage funds. The total asset under management (AUM) of funds in this category crossed Rs 1.90 lakh crore. During the financial year 2023-24, there was a net investment of Rs 90 thousand crore in arbitrage funds.

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What is Arbitrage Fund?
Arbitrage funds fall under the category of equity funds and are tax-advantaged over debt funds. At least 65% of them are invested in equity. The remaining investments are made in debt and money market instruments. Arbitrage funds generate profits by taking advantage of differences in share prices in the cash and futures (derivatives) segments of the equity market. During volatility in the stock market, the difference in prices between two segments, or the spread, widens. When the market is more volatile, these funds give higher returns.

How are the earnings?
Arbitrage funds buy shares from one segment at a lower price and sell them at a higher price in another segment and make money. For example, the share price of a company is Rs 200 in the cash segment and Rs 205 in the futures/derivatives segment. An arbitrage fund manager buys 100 shares of a company for Rs 20,000 in the cash segment and sells them for Rs 20,500 in the derivative segment and earns a profit of Rs 500. Yes, returns will be available only if the share price remains the same in the cash and derivative segments at the time of expiry of the futures contract.

If the same share price expires at Rs.195 in cash segment and Rs.190 in derivative segment per stunt contract, then there will be a loss of Rs.5 i.e. Rs.1000 per share. Cash market, while the derivative segment will have a loss of Rs 1000 per share i.e. a total profit of Rs 3000. This means the fund manager will make a net profit of Rs 2,000.

Tax
Arbitrage funds fall under the category of equity mutual fund. Hence the tax on it is also equal to equity. If you redeem in less than a year, the proceeds will be treated as short-term capital gains and you will have to pay short-term capital gains tax at 15% (plus 4% cess). If you redeem after one year, the income will be treated as long-term capital gain and you will have to pay long-term capital gains tax at 10% (plus 4% cess) on annual income above Rs 1 lakh. Will be.

(Disclaimer: The information given here is based on mutual fund performance. If you want to invest in any of them, consult a certified investment advisor first. News 18 of your profit or loss. will not be responsible for.)

Tags: money making tips, mutual fund, Stock market