What is the difference between arbitrage and arbitrage plus fund? Which is better as a alternative to FD assuming I don’t need the money for 1 year?
Arun-Typically Arbitrage Funds use the arbitrage opportunity available in cash and F&O markets. It capture the spread between the cash and futures market by simultaneously executing buy (in the cash market) and sell (in the futures market) trades.
When you say new entrants of arbitrage funds called as “ARBITRAGE PLUS FUND”, I found the only fund with this name and i.e. IDFC Arbitrage Plus Fund. This fund claims that, apart from using the regular arbitrage opportunity in cash and future market, it also participate in the opportunities like stock buy back or pair trades (restricting itself to around 5% to such opportunities). This I feel something like unhedged position and carry a risk than pure arbitrage funds.
In my view, I prefer pure arbitrage fund rather than arbitrage plus funds.