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What are Income Plus Arbitrage Fund of Funds?

What are Income Plus Arbitrage Fund of Funds?

When you’re looking for ways to grow your money without taking too much risk, most people turn to fixed deposits or debt mutual funds. But what if there was a way to get a bit more from your investments without stepping too far into riskier options? That’s where the Income Plus Arbitrage Fund of Funds (FoFs) come in. These funds are designed for investors who want a little more than traditional debt returns but still want to avoid the ups and downs of the stock market. To know more about these schemes, keep reading.

What are Income Plus Arbitrage FoFs?

The Income Plus Arbitrage Fund of Funds is an open-ended scheme designed to generate regular income and capital appreciation by combining fixed income with arbitrage mutual fund schemes. These funds don’t invest directly in stocks or bonds. Instead, they invest in other mutual fund schemes, mainly debt and arbitrage funds.

Presently as we write there are a total of 11 Funds in this category. Either the AMC has restructured an old fund into an Income Plus Arbitrage Fund of Funds or they have launched a new fund.

What are the Features of Income Plus Arbitrage FoFs?

Below are some unique characteristics of these funds.

1. Diversified investment approach

These FoFs invest in a combination of debt instruments like treasury bills, bonds, and equity arbitrage mutual funds. This helps keep returns steady and risk levels low.

2. Expense limit

The maximum Total Expense Ratio (TER) for these schemes is fixed at 2%, which limits how much investors are charged for fund management.

3. Set asset allocation guidelines

The allocation to debt-based assets will not exceed 65% of the total assets, while at least 35% will be invested in arbitrage-based equity mutual funds at all times.

4. Reduced equity risk and volatility

Despite including equity, the use of arbitrage minimises the risks from market fluctuations by capitalising on price differences rather than predicting market movements

How are Income Plus Arbitrage FoFs Taxed?

With effect from 1st April 2025, Income Plus Arbitrage Fund of Funds will be taxed as follows:

– Capital gains from these FoFs will be considered long-term if held for more than 24 months and will be taxed at 12.5%.

– Short-term gains will apply if the funds are held for less than 24 months and will be taxed according to the investor’s income tax slab.

One key difference between pure debt mutual funds and Income Plus Arbitrage FoFs is that debt funds are taxed at slab rates, regardless of the holding period.

Conclusion

Income Plus Arbitrage Fund of Funds offer a fresh option for investors who want better-than-debt returns with limited exposure to equity risks. With a fixed structure and tax benefits for long-term holding, these funds can be suitable for conservative investors looking to improve their portfolio mix and maintain a long investment horizon of minimum 2 years.

If you’re planning to explore such investment options, Tata Capital Wealth can guide you with strategies that match your financial objectives and risk appetite. With access to mutual funds, bonds, real estate, and more, Tata Capital Wealth helps you build a strong foundation for your future.

Visit our website today and plan your future with peace of mind!

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FAQs

Should I invest in an Income Plus Arbitrage Fund of Funds for the long-term?

The Income Plus Arbitrage FOFs is designed for short to medium-term returns, so it may not be ideal for those looking for long-term investment options.

Is Income Plus Arbitrage Fund of Funds a diverse investment option?

While this fund helps diversify debt investments, it may not offer sufficient diversification across different asset classes for a well-rounded portfolio.

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