Nippon India Mutual Fund’s latest new fund offer of Nippon India Income Plus Arbitrage Active Fund of Fund is open for subscription and will close on June 11. The fund is an open-ended hybrid fund of fund scheme investing in debt and arbitrage funds.
The primary investment objective of the scheme is to achieve stable returns while navigating market volatilities for its investors which will be pursued by strategically investing in a diversified portfolio of open-ended debt oriented schemes, and units of arbitrage funds of Nippon India Mutual Fund or any other mutual fund(s).
Also Read | Volatile Markets and SIPs: What should mutual fund investors do?
Fund house comment on launch
Nippon India Income Plus Arbitrage Active FOF attempts to provide a better risk adjusted and tax efficient solution for conservative investors. The product seeks to invest in a combination of Debt Funds (less than 65%) and Arbitrage Funds (> 35%) to lower the volatility and offering better tax efficiency for investment tenure of over 2 years,” Saugata Chatterjee, President and CBO at Nippon India Mutual Fund shared with ETMutualFunds.
“The product can be considered by investors seeking lower volatility investment solutions with better tax efficiency compared to other traditional alternatives,” he further added.
The fund will allocate 95-100% in units of arbitrage fund and debt mutual fund schemes and 0-5% in debt and money market instruments.
Nippon India Income Plus Arbitrage Active Fund of Fund is an actively managed fund. The scheme shall invest in units of arbitrage and debt-oriented schemes subject to permissible limits The scheme has the flexibility to manage its allocation of its assets between arbitrage fund and debt-oriented schemes after evaluating various parameters like arbitrage spreads between the cash market and future and options market, credit risk, interest rate risk, liquidity risk and others as found suitable by the fund managers.
Emerging category
According to a report by ETBureau, Income plus Arbitrage FoF is a new category of schemes that invest a little less than 65% in fixed income with the balance in arbitrage strategies and some funds also invest in schemes of other fund houses.
Experts take on new launch
Experts typically ask investors to avoid investing in NFOs unless they offer something unique. The uniqueness could be that the scheme is offering an investment option that is not available in the market or offering something extra to an existing option. Otherwise, the experts believe investors are better off with an existing scheme with a long performance record. This is because you have some historical data to base your investment decision. You don’t have any data when it comes to new offerings.
According to an expert, Income Plus Arbitrage Funds combine high-quality debt and equity arbitrage strategies to deliver low-volatility, tax-efficient returns.
Also Read | Smallcap mutual funds offer 8% average return in May, all equity mutual fund categories end with gains
“They’re designed for investors seeking stability without locking into traditional debt products. While this NFO is new, those with a 2–3-year investment horizon and low risk appetite can consider a limited allocation, especially if looking for better post-tax outcomes than typical debt funds,” Sagar Shinde, VP Research at Fisdom shared with ETMutualFunds.
In this category, if the scheme is held for two years, gains are taxed at the rate of 12.5% and if less than two years, the gains are added to investors income and are taxed as per slab rates and these funds are used by investors as debt allocation for tax efficiency, the ET Bureau report said.
Another expert believes that as Income Plus Arbitrage Funds are hybrid mutual fund schemes that invest in a combination of debt instruments and arbitrage strategies, they offer debt-like stability with added benefit of tax-efficiency and in the current market scenario, conservative investors can consider these funds.
“Income Plus Arbitrage Funds are hybrid mutual fund schemes that invest in a combination of debt instruments and arbitrage strategies. Arbitrage involves exploiting price differences between the cash and derivatives markets to generate returns with minimal risk . These funds aim to offer debt-like stability with the added benefit of tax efficiency. Given the current market conditions, it may be suitable for conservative investors seeking stable returns with lower tax implications,” Adhil Shetty, CEO of Bankbazaar.com asserted ETMutualFunds.
There are around nine funds based on this theme of which one is newly launched and for other eight funds, the respective fund houses have changed the scheme fundamental attribute in the current calendar year. Among these nine funds, UTI Income Plus Arbitrage Active FoF was launched on April 4.
Some of the name changes were - Aditya Birla Sun Life Active Debt Multi Manager FoF was rebranded as Aditya Birla Sun Life Debt Plus Arbitrage FoF. Bandhan All Seasons Bond Fund became Bandhan Income Plus Arbitrage Fund of Funds. HSBC Managed Solutions India Growth Fund was renamed HSBC Aggressive Hybrid Active FoF, while Kotak All Weather Debt FoF was restructured as Kotak Income Plus Arbitrage FoF.
At present, Union Income Plus Arbitrage Active FOF is under its NFO period and will close for subscription on June 5. Baroda BNP Paribas Income Plus Arbitrage Active Fund of Fund (FoF), Tata Income Plus Arbitrage Active Fund of Fund, and SBI Income Plus Arbitrage Active FOF have completed their NFO period on May 21, May 19, and April 30 respectively.
Recently, Franklin Templeton Mutual Fund announced the change in fundamental attribute of Franklin India Multi-Asset Solution Fund of Fund and the name of the scheme will be changed to Franklin India Income Plus Arbitrage Active Fund of Funds effective from July 4.
Also Read | Best mutual fund SIP portfolios to invest in June 2025
Now the question arises whether these funds will be a substitute for traditional debt funds?
Shetty is of the opinion that post the 2023 Budget, gains from traditional debt funds are taxed at the investor's slab rate, making them less attractive for those in higher tax brackets, these funds work by allocating up to 65% in debt instruments and the remaining in arbitrage opportunities, balancing stability and potential returns and while they offer tax advantages and lower volatility, they may not entirely replace traditional debt funds due to their relatively shorter track record and slightly higher expense ratios.
On the other hand, Shinde explains that with arbitrage spreads attractive and interest rates expected to soften, these funds are well-positioned to offer stable returns and they act as substitutes for short-duration debt funds, especially for those in higher tax brackets.
“The mix of fixed income and arbitrage helps them deliver predictable performance with low volatility. However, they work best when held for at least 2–3 years to benefit from favourable taxation and reduce reinvestment risk,” Shinde further shares with ETMutualFunds.
Among these existing funds based on this particular theme, eight have a performance record of one year. ICICI Pru Income plus Arbitrage Active FOF has offered the highest return of around 11.60% in the last one year, followed by DSP Income Plus Arbitrage FoF which offered 10.58% return in the same period.
HSBC Income Plus Arbitrage Active FOF and HDFC Income Plus Arbitrage Active FOF offered 7.93% and 5.47% returns respectively in the last one year.
Post the performance of these funds in the last one year, the experts recommend an allocation of 5-10% or 10-20% in the fixed income portion.
Also Read | An underrated solution, finding its due: Radhika Gupta reacts on tax-efficient options beyond equities
Shinde shared the allocation one can have and mentioned that a 5–10% allocation in the fixed-income bucket is reasonable and these funds are best suited for investors seeking steady returns over a 2–3-year time frame. “With a stable rate environment, surplus liquidity, and high-quality debt exposure, the outlook remains constructive. The combination of dynamic allocation and tax efficiency adds to their appeal in the current market setup,” he added.
According to the ETBureau story, with equity valuations running high, risk-averse investors are maintaining their distance from the stock market. But to affluent investors seeking tax-efficient options beyond equities, a new breed of mutual fund strategies offer compelling alternatives.
Categories such as arbitrage funds, income plus arbitrage FoFs, multi-asset allocation and precious metal funds (gold/silver) are gaining traction. These funds typically avoid direct equity exposure while offering better post-tax returns than traditional fixed income, the story further added.
Shetty recommends that given their moderate risk profile and tax efficiency, Income Plus Arbitrage Funds can be considered as a supplementary investment, especially for those in higher tax brackets seeking stable returns over a medium-term horizon and the suggested allocation could be around 10-20% of the fixed-income portion of one's portfolio. “The outlook for these funds is positive, especially in volatile markets where arbitrage opportunities are more prevalent. However, investors should be mindful of the fund's expense ratio and the potential variability in returns based on market conditions,” he further shared with ETMutualFunds.
One should always invest based on their risk appetite, investment horizon, and goals.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.
The primary investment objective of the scheme is to achieve stable returns while navigating market volatilities for its investors which will be pursued by strategically investing in a diversified portfolio of open-ended debt oriented schemes, and units of arbitrage funds of Nippon India Mutual Fund or any other mutual fund(s).
Also Read | Volatile Markets and SIPs: What should mutual fund investors do?
Fund house comment on launch
Nippon India Income Plus Arbitrage Active FOF attempts to provide a better risk adjusted and tax efficient solution for conservative investors. The product seeks to invest in a combination of Debt Funds (less than 65%) and Arbitrage Funds (> 35%) to lower the volatility and offering better tax efficiency for investment tenure of over 2 years,” Saugata Chatterjee, President and CBO at Nippon India Mutual Fund shared with ETMutualFunds.
“The product can be considered by investors seeking lower volatility investment solutions with better tax efficiency compared to other traditional alternatives,” he further added.
The fund will allocate 95-100% in units of arbitrage fund and debt mutual fund schemes and 0-5% in debt and money market instruments.
Nippon India Income Plus Arbitrage Active Fund of Fund is an actively managed fund. The scheme shall invest in units of arbitrage and debt-oriented schemes subject to permissible limits The scheme has the flexibility to manage its allocation of its assets between arbitrage fund and debt-oriented schemes after evaluating various parameters like arbitrage spreads between the cash market and future and options market, credit risk, interest rate risk, liquidity risk and others as found suitable by the fund managers.
Emerging category
According to a report by ETBureau, Income plus Arbitrage FoF is a new category of schemes that invest a little less than 65% in fixed income with the balance in arbitrage strategies and some funds also invest in schemes of other fund houses.
Experts take on new launch
Experts typically ask investors to avoid investing in NFOs unless they offer something unique. The uniqueness could be that the scheme is offering an investment option that is not available in the market or offering something extra to an existing option. Otherwise, the experts believe investors are better off with an existing scheme with a long performance record. This is because you have some historical data to base your investment decision. You don’t have any data when it comes to new offerings.
According to an expert, Income Plus Arbitrage Funds combine high-quality debt and equity arbitrage strategies to deliver low-volatility, tax-efficient returns.
Also Read | Smallcap mutual funds offer 8% average return in May, all equity mutual fund categories end with gains
“They’re designed for investors seeking stability without locking into traditional debt products. While this NFO is new, those with a 2–3-year investment horizon and low risk appetite can consider a limited allocation, especially if looking for better post-tax outcomes than typical debt funds,” Sagar Shinde, VP Research at Fisdom shared with ETMutualFunds.
In this category, if the scheme is held for two years, gains are taxed at the rate of 12.5% and if less than two years, the gains are added to investors income and are taxed as per slab rates and these funds are used by investors as debt allocation for tax efficiency, the ET Bureau report said.
Another expert believes that as Income Plus Arbitrage Funds are hybrid mutual fund schemes that invest in a combination of debt instruments and arbitrage strategies, they offer debt-like stability with added benefit of tax-efficiency and in the current market scenario, conservative investors can consider these funds.
“Income Plus Arbitrage Funds are hybrid mutual fund schemes that invest in a combination of debt instruments and arbitrage strategies. Arbitrage involves exploiting price differences between the cash and derivatives markets to generate returns with minimal risk . These funds aim to offer debt-like stability with the added benefit of tax efficiency. Given the current market conditions, it may be suitable for conservative investors seeking stable returns with lower tax implications,” Adhil Shetty, CEO of Bankbazaar.com asserted ETMutualFunds.
There are around nine funds based on this theme of which one is newly launched and for other eight funds, the respective fund houses have changed the scheme fundamental attribute in the current calendar year. Among these nine funds, UTI Income Plus Arbitrage Active FoF was launched on April 4.
Some of the name changes were - Aditya Birla Sun Life Active Debt Multi Manager FoF was rebranded as Aditya Birla Sun Life Debt Plus Arbitrage FoF. Bandhan All Seasons Bond Fund became Bandhan Income Plus Arbitrage Fund of Funds. HSBC Managed Solutions India Growth Fund was renamed HSBC Aggressive Hybrid Active FoF, while Kotak All Weather Debt FoF was restructured as Kotak Income Plus Arbitrage FoF.
At present, Union Income Plus Arbitrage Active FOF is under its NFO period and will close for subscription on June 5. Baroda BNP Paribas Income Plus Arbitrage Active Fund of Fund (FoF), Tata Income Plus Arbitrage Active Fund of Fund, and SBI Income Plus Arbitrage Active FOF have completed their NFO period on May 21, May 19, and April 30 respectively.
Recently, Franklin Templeton Mutual Fund announced the change in fundamental attribute of Franklin India Multi-Asset Solution Fund of Fund and the name of the scheme will be changed to Franklin India Income Plus Arbitrage Active Fund of Funds effective from July 4.
Also Read | Best mutual fund SIP portfolios to invest in June 2025
Now the question arises whether these funds will be a substitute for traditional debt funds?
Shetty is of the opinion that post the 2023 Budget, gains from traditional debt funds are taxed at the investor's slab rate, making them less attractive for those in higher tax brackets, these funds work by allocating up to 65% in debt instruments and the remaining in arbitrage opportunities, balancing stability and potential returns and while they offer tax advantages and lower volatility, they may not entirely replace traditional debt funds due to their relatively shorter track record and slightly higher expense ratios.
On the other hand, Shinde explains that with arbitrage spreads attractive and interest rates expected to soften, these funds are well-positioned to offer stable returns and they act as substitutes for short-duration debt funds, especially for those in higher tax brackets.
“The mix of fixed income and arbitrage helps them deliver predictable performance with low volatility. However, they work best when held for at least 2–3 years to benefit from favourable taxation and reduce reinvestment risk,” Shinde further shares with ETMutualFunds.
Among these existing funds based on this particular theme, eight have a performance record of one year. ICICI Pru Income plus Arbitrage Active FOF has offered the highest return of around 11.60% in the last one year, followed by DSP Income Plus Arbitrage FoF which offered 10.58% return in the same period.
HSBC Income Plus Arbitrage Active FOF and HDFC Income Plus Arbitrage Active FOF offered 7.93% and 5.47% returns respectively in the last one year.
Post the performance of these funds in the last one year, the experts recommend an allocation of 5-10% or 10-20% in the fixed income portion.
Also Read | An underrated solution, finding its due: Radhika Gupta reacts on tax-efficient options beyond equities
Shinde shared the allocation one can have and mentioned that a 5–10% allocation in the fixed-income bucket is reasonable and these funds are best suited for investors seeking steady returns over a 2–3-year time frame. “With a stable rate environment, surplus liquidity, and high-quality debt exposure, the outlook remains constructive. The combination of dynamic allocation and tax efficiency adds to their appeal in the current market setup,” he added.
According to the ETBureau story, with equity valuations running high, risk-averse investors are maintaining their distance from the stock market. But to affluent investors seeking tax-efficient options beyond equities, a new breed of mutual fund strategies offer compelling alternatives.
Categories such as arbitrage funds, income plus arbitrage FoFs, multi-asset allocation and precious metal funds (gold/silver) are gaining traction. These funds typically avoid direct equity exposure while offering better post-tax returns than traditional fixed income, the story further added.
Shetty recommends that given their moderate risk profile and tax efficiency, Income Plus Arbitrage Funds can be considered as a supplementary investment, especially for those in higher tax brackets seeking stable returns over a medium-term horizon and the suggested allocation could be around 10-20% of the fixed-income portion of one's portfolio. “The outlook for these funds is positive, especially in volatile markets where arbitrage opportunities are more prevalent. However, investors should be mindful of the fund's expense ratio and the potential variability in returns based on market conditions,” he further shared with ETMutualFunds.
One should always invest based on their risk appetite, investment horizon, and goals.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.
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