As an investor, it is very confusing to pick a scheme to invest your capital, especially when you are just a fresher in the mutual fund market. There are so many options for investments that people tend to get confused as to which would be the ideal spot to fill in. Thus, one of the best choices to go for is arbitrage funds. Here are certain factors related to these funds which you need to bear in mind to make your portfolio robust:
-Firstly, ponder over your investment horizon and based on it, decide whether to invest in arbitrage funds or not. These funds are best suited to investors interested in an investment span between 3 to 5 years. -Secondly, set your financial goals with care. Arbitrage funds are always a better option when compared to banks deposits and other money-making schemes. Short-term and mid-term goals could be easily met with them. -Thirdly, consider the number of risks that are involved in these funds. This is the only fund that runs smoothly without any risk factor involved with the investments made and thus, the investments made in these funds are limited. The trades in these funds are done by the help of the stock exchange; hence, you are bound to get returns. However, due to high demand and limited vacancies in an arbitrage fund, you have to be smart enough to quickly secure a place in the same. -Fourthly, estimate the costs and returns. Not just for arbitrage funds but whenever you are signing up for a deal, it is important to check whether your returns exceed your investments or not. This will give you a clear picture of whether to go for that investment or not. Here too, check up the additional charges that the asset manager or the team levies and also check the cash inflow from the investment. -Lastly, be prepared for the payment of taxes. Since your investments do not have fixed tenures, you have to keep in mind the rate at which the tax amount is to be paid for both short-term capital and long-term capital gains. Short-term capital gains mean that you will be charged with a 15% tax rate and long-term gains will be charged at 10%. Investments held for less than a year are short-term plans whereas investments held for periods more than a year follow the long-term criteria. Thus, we see how these funds operate and yield considerable returns to the investors. The benefits and risks appear similar in most cases and this is the reason why most investors end up investing in funds that do not even have good track records.
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