The New Fund Offer of Parag Parikh Arbitrage Fund is open now and will remain available till October 27, 2023. The allotment date of the fund is November 2 and the reopening date is November 3, 2023. As per information on the AMC’s website, Parag Parikh Arbitrage Fund (PPAF) is an open-ended scheme investing in arbitrage opportunities.

The AMC says arbitrage mutual funds usually choose to undertake a type of arbitrage known as “Cash Futures Arbitrage”. Cash Futures Arbitrage involves the simultaneous purchase and sale of an equivalent quantity of the same security in the cash/spot market and Futures markets. This is done with the aim of profiting from the price differences between the two markets.

According to the AMC, spot prices, the ones which are continuously flashed on the stock price ticker on TV, are usually lower than the ones prevailing in the Futures market as there may be many Futures contracts for the same stock with each one expiring on a specific date. The AMC has further explained this on its website with a sample illustration:

  • Buy equity shares of XYZ for Rs. 300/- on September 15, 2023.
  • Simultaneously sell Futures contract of XYZ expiring on September 28, 2023 for Rs. 305/-.
  • On September 28, 2023 the spot and futures price converges.
  • Hence a relatively ‘low risk’ profit of Rs. 5/- can be earned.

“Parag Parikh Arbitrage Fund (PPAF) aims to replicate this process by undertaking simultaneous buy and sell transactions in spot and futures markets whenever feasible, thereby generating relatively ‘low risk’ pre-tax profit for its unitholders,” the AMC says.

Also Read: Make the most of changing market trends with flexi-caps

Investors should note that the above is just an illustration and it should not be seen as a “promise/minimum returns/ safeguard of capital”.

Who may invest?

PPAF may be suitable for investors interested in generating income by predominantly investing in arbitrage opportunities in the cash and derivatives segment of the equity market.

The AMC says that investors should consult their financial advisors if in doubt about whether the product is suitable for them.

As per the riskometer of the scheme, it carries “low risk”. Units of this fund can be purchased with a minimum of Rs 1000 and in multiples of Re 1 thereafter. The scheme also allows a minimum monthly SIP of Rs 1000. The minimum redemption allowed is Rs 1000 or 1 uniti or account balance, whichever is lower.

Disclaimer: The above content is for informational purposes only, based on the information available on Parag Parikh Mutual Fund’s Website. Investing in any mutual fund scheme is subject to market risks. Please consult your financial advisor before investing.