The other reason is the better tax-adjusted returns delivered by arbitrage funds when compared with liquid funds. “In the past few months, arbitrage funds have delivered better linear post-tax returns compared with liquid funds," said Sailesh Jain, fund manager, Tata Mutual Fund. The differential in return may not be much, but it is the tax efficiency of arbitrage funds that gives them an edge over debt funds, including liquid funds. Arbitrage funds get the tax treatment of equity funds. So, tax efficiency and lower volatility make arbitrage funds a good alternative to liquid funds.

Source: Mint August 15, 2021 19:30 UTC