What Is Income Plus Arbitrage Fund?

Income Plus Arbitrage Funds are a new hybrid mutual fund category in India, typically structured as Fund-of-Funds (FoF).

These funds invest in a blend of actively managed debt schemes and arbitrage funds, packaged as a single mutual fund product.

The objective of the fund is to provide regular income and capital appreciation by diversifying between debt instruments and exploiting arbitrage opportunities in equities (price differences between cash and derivatives markets).

Key Features & Structure:

• Allocation: About 60-65% in debt funds; 35-40% in arbitrage funds.
• Taxation: If held for over 24 months, long-term capital gains (LTCG) are taxed at a favorable 12.5% (plus surcharge and cess), making them more tax-efficient than standard debt mutual funds (which are taxed at slab rates up to 42.74% for high-income investors).
• Flexibility: Managers can mix and match across various debt and arbitrage funds, sometimes including products from different fund houses for broader diversification.
• Target investors: Aimed at conservative or high-tax-bracket investors seeking low-risk, tax-efficient alternatives to debt funds for short-to-medium horizons (6 months to 3 years).

Advantages:

• Better post-tax returns versus regular debt funds if held >2 years.
• Diversification across asset classes and fund houses.
• Regular income with relatively low risk.