Summary
The best arbitrage mutual funds in India for 2026 include Kotak Arbitrage Fund, SBI Arbitrage Opportunities Fund and ICICI Prudential Arbitrage Fund, among the top schemes by AUM.
Arbitrage funds are hybrid schemes that seek returns from price differences between cash and futures markets while largely hedging their equity exposure.
Among the 10 funds covered, Invesco India Arbitrage Fund had the highest five-year CAGR at 6.96%, while UTI Arbitrage Fund had the lowest expense ratio at 0.24%.
Arbitrage funds carry market-linked risks, while qualifying schemes are taxed as equity-oriented mutual funds.
The best arbitrage mutual funds in India for 2026 include Kotak Arbitrage Fund, SBI Arbitrage Opportunities Fund and ICICI Prudential Arbitrage Fund, among others.
Arbitrage funds are hybrid mutual fund schemes that aim to generate returns by exploiting the price gaps, for the same security, between the cash market and the derivatives market. They buy at a low price in the cash market and immediately sell at a high price in the derivative market to lock in profits at minimal risk.
Arbitrage schemes follow an arbitrage strategy and maintain at least 65% exposure to equity and equity-related instruments. Their behaviour is therefore different from conventional equity funds, where returns depend much more directly on rising or falling share prices.
Arbitrage fund returns have not been uniform. As of August 2026, the category returns are:
| Period | Return |
| 1 Year | 5.88% |
| 3 Years | 6.65% |
| 5 Years | 5.84% |
| 10 Years | 5.59% |
The 3-year figure is the highest in this set. That is why the fund comparison below looks at both 3-year and 5-year returns rather than relying on a single period.
The next section compares the top 10 arbitrage funds by AUM, along with their returns, costs, benchmark performance and risk.
Best 10 Arbitrage Mutual Funds: Quick Comparison
The table below compares the top 10 arbitrage mutual funds by AUM across key investment parameters as of August 11 2026.
| Fund Name (Direct Plan) | 3Y CAGR | 5Y CAGR | Benchmark 5Y Return | AUM | Expense Ratio | Minimum SIP | Risk |
| Kotak Arbitrage Fund | 7.63% | 6.87% | 6.53% | ₹74,399 Cr | 0.34% | ₹100 | Low |
| SBI Arbitrage Opportunities Fund | 7.43% | 6.78% | 6.53% | ₹45,923 Cr | 0.34% | ₹500 | Low |
| ICICI Prudential Arbitrage Fund | 7.48% | 6.67% | 6.53% | ₹34,180 Cr | 0.34% | ₹500 | Low |
| Aditya Birla Sun Life Arbitrage Fund | 7.57% | 6.73% | 6.53% | ₹26,646 Cr | 0.27% | ₹100 | Low |
| Tata Arbitrage Fund | 7.63% | 6.79% | 6.53% | ₹24,026 Cr | 0.26% | ₹150 | Low |
| Invesco India Arbitrage Fund | 7.59% | 6.96% | 6.53% | ₹23,907 Cr | 0.34% | ₹500 | Low |
| HDFC Arbitrage Fund | 7.44% | 6.59% | 6.53% | ₹23,772 Cr | 0.34% | ₹100 | Low |
| Nippon India Arbitrage Fund | 7.46% | 6.72% | 6.53% | ₹16,638 Cr | 0.28% | ₹100 | Low |
| Edelweiss Arbitrage Fund | 7.58% | 6.83% | 6.53% | ₹15,062 Cr | 0.33% | ₹100 | Low |
| UTI Arbitrage Fund | 7.49% | 6.64% | 6.53% | ₹11,324 Cr | 0.24% | ₹500 | Low |
Note:
- The benchmark return is based on the NIFTY 50 Arbitrage Index as of 31 July 2026. Its five-year CAGR stood at 6.53%.
- Fund-level returns are based on the latest available August 2026 figures.
- AUM figures represent the latest reported month for each scheme (June/ July 2026).
- Past returns are not a guarantee of future performance.
Top 10 Arbitrage Mutual Funds in India
AUM gives a useful sense of a fund’s scale and how much investor money it manages. Larger schemes also tend to have an established operating track record, making AUM a practical starting point for narrowing the category. The next step is to compare how each fund performs on returns, cost, risk and portfolio positioning.
1. Kotak Arbitrage Fund
Kotak Arbitrage Fund is the largest scheme on this list, with an AUM of ₹74,399 crore. The direct plan delivered a 7.63% three-year CAGR and 6.87% over five years.
Its five-year return is about 0.34 percentage points above the 6.53% benchmark return. The fund carries a Low riskometer rating and has a direct-plan expense ratio of 0.34%.
The minimum SIP and lump-sum investments are both ₹100. Its reported portfolio includes allocations to money market, savings, liquid and low-duration instruments alongside its arbitrage positions.
Its scale and low entry amount are useful. On the other hand, its expense ratio is higher than several lower-cost funds in this list.
2. SBI Arbitrage Opportunities Fund
SBI Arbitrage Opportunities Fund manages ₹45,923 crore. Over three years, it delivered an annualised return of 7.43%, while its five-year CAGR was 6.78%.
The five-year return is around 0.25 percentage points above the benchmark. The fund carries a Low risk rating and charges 0.34% under the direct plan.
A SIP starts at ₹500, while the minimum lump-sum investment is ₹5,000. Its portfolio includes savings, liquid and low-duration funds, along with short-term instruments such as certificates of deposit.
The scheme has a sizeable asset base and a long track record. Its entry amount is also on the higher side compared with funds that allow SIPs or lump sums from ₹100.
3. ICICI Prudential Arbitrage Fund
ICICI Prudential Arbitrage Fund has an AUM of ₹34,180 crore. Its three-year CAGR is 7.48%, with the five-year return at 6.67%.
That puts the five-year return slightly above the 6.53% benchmark. The direct plan has an expense ratio of 0.34% and carries a Low risk rating.
Investors can begin a SIP with ₹500. The portfolio has a meaningful allocation to money-market instruments, including bank certificates of deposit and other short-term debt holdings.
The fund is among the larger schemes in the category. Its five-year return has stayed close to the benchmark, so cost and portfolio quality become important comparison points here.
4. Aditya Birla Sun Life Arbitrage Fund
Aditya Birla Sun Life Arbitrage Fund manages ₹26,646 crore. It recorded annualised returns of 7.57% over three years and 6.73% over five years.
Its five-year return is around 0.20 percentage points above the benchmark. The scheme is rated Low on the riskometer and has a 0.27% direct-plan expense ratio.
The minimum SIP is ₹100, while the minimum lump-sum investment is ₹1,000. The portfolio includes money-market and floating-rate exposure along with certificates of deposit.
Cost is one of its advantages. Its five-year return, though, trails a few similarly sized funds in the top 10.
5. Tata Arbitrage Fund
Tata Arbitrage Fund has an AUM of ₹24,026 crore. The scheme delivered 7.63% over three years and 6.79% annually over five years.
That puts its five-year return roughly 0.26 percentage points above the benchmark. Its riskometer classification is Low, and its expense ratio stands at 0.26%.
A SIP can be started with ₹150, while the minimum lump-sum amount is ₹5,000. Its reported holdings include a money-market fund and short-term instruments issued by financial institutions.
The fund combines a relatively low expense ratio with competitive three-year returns. Its track record is shorter than schemes whose direct plans have operated since 2013.
6. Invesco India Arbitrage Fund
Invesco India Arbitrage Fund manages ₹23,907 crore. Its direct plan returned 7.59% annually over three years and 6.96% over five years.
Among these 10 funds, its five-year return is the highest. It also exceeded the benchmark by about 0.43 percentage points over that period.
The expense ratio is 0.34%, and the scheme has a Low riskometer rating. Its minimum SIP is ₹500, and investors need at least ₹1,000 for a lump-sum investment.
Its portfolio includes liquid and money-market allocations alongside bank CDs. The historical return record is positive, but its expense ratio and SIP minimum are higher than several alternatives.
7. HDFC Arbitrage Fund
HDFC Arbitrage Fund has an AUM of ₹23,772 crore. It generated a 7.44% three-year CAGR and a 6.59% five-year CAGR.
Its five-year return has stayed close to the 6.53% benchmark. Risk is classified as Low, and the direct-plan expense ratio is 0.34%.
Both the minimum SIP and lump-sum investment start at ₹100. Its reported portfolio includes money-market, liquid, ultra-short and low-duration allocations alongside arbitrage trades.
Accessibility is a clear advantage. However, its five-year performance has been towards the lower end of this particular top-10 group.
8. Nippon India Arbitrage Fund
Nippon India Arbitrage Fund manages ₹16,638 crore. Its three-year annualised return stood at 7.46%, while the five-year CAGR was 6.72%.
The fund beat its five-year benchmark by about 0.19 percentage points. It carries a Low riskometer rating, and its direct-plan expense ratio is 0.28%.
The SIP minimum is ₹100, although lump-sum investors need at least ₹5,000. Its portfolio includes money-market and ultra-short-duration exposure besides the core arbitrage book.
Its lower expense ratio works in its favour. The minimum lump-sum requirement may be less convenient for someone looking to start with a small one-time amount.
9. Edelweiss Arbitrage Fund
Edelweiss Arbitrage Fund has an AUM of ₹15,062 crore. It returned 7.58% annually over three years and 6.83% over five years.
Its five-year CAGR exceeds the benchmark by about 0.30 percentage points. The fund carries a Low riskometer classification and charges a 0.33% direct-plan expense ratio.
Both SIP and lump-sum investments can start at ₹100. Its reported portfolio includes liquid and money-market schemes plus short-maturity debt securities.
Its five-year return compares well within this list. The expense ratio is still higher than lower-cost options such as UTI, Tata and Aditya Birla Sun Life.
10. UTI Arbitrage Fund
UTI Arbitrage Fund rounds out the top 10 with an AUM of ₹11,324 crore. Its three-year CAGR stood at 7.49%, while the five-year return was 6.64%.
The five-year return is about 0.11 percentage points above the benchmark. Its direct-plan expense ratio is 0.24%, the lowest among the 10 funds compared here.
The minimum SIP and lump-sum investments are ₹500 and ₹5,000, respectively. Its reported portfolio includes money-market and floating-rate allocations along with CDs and liquid-fund exposure.
Lower cost is its main differentiator. Its five-year return, however, has stayed fairly close to the benchmark.
How We Selected These Arbitrage Funds
There are many ways to define the “best” Mutual Funds. For this list, we used the following approach:
- AUM: The 10 largest arbitrage schemes by assets under management were selected. This holds the selection rule objective rather than choosing funds retrospectively based on returns.
- Direct plans: Returns and expense ratios refer to direct plans so that every fund is compared on the same basis.
- Longer return periods: Three-year and five-year CAGRs were considered instead of relying on short-term performance.
- Benchmark comparison: Each fund’s five-year return was compared with the NIFTY 50 Arbitrage benchmark. The index delivered a 6.53% five-year CAGR as of 31 July 2026.
- Costs: Expense ratios matter because return differences between arbitrage funds tend to be fairly narrow.
- Accessibility: Minimum SIP amounts were included to show how much investors need to start.
- Risk: Scheme riskometers and category-level risk measures were considered separately. A Low riskometer does not mean guaranteed or fixed returns.
Arbitrage Funds vs Other Fund Categories
The table below compares arbitrage funds with two categories investors may consider for different goals.
| Factor | Arbitrage Funds | Liquid Funds | Equity Mutual Funds |
| Main strategy | Cash-futures arbitrage plus debt | Very short-term debt and money-market instruments | Shares of listed companies |
| Return driver | Arbitrage spreads and debt income | Interest income and short-term debt pricing | Company earnings and equity-market movements |
| Market exposure | Equity positions largely hedged | No directional equity exposure | Direct equity exposure |
| Volatility | Generally low | Generally low | Higher |
| Typical use | Short-term parking with some market-linked return potential | Short-term cash management | Long-term wealth creation |
| Return potential | Moderate | Moderate | Higher over long periods, with higher risk |
| Main risks | Narrowing spreads, execution and debt risks | Credit, liquidity and interest-rate risks | Market, company and valuation risks |
Liquid Funds invest in debt and money-market instruments with maturities of up to 91 days. This makes them more directly focused on liquidity and short-term cash management.
Arbitrage funds take a different route. They hold equity and offset much of that exposure through derivatives, attempting to capture the gap between cash and futures prices.
Equity Mutual Funds take directional equity exposure instead. They therefore have much greater long-range growth potential, but investors also experience larger market swings.
Benefits and Risks of Arbitrage Mutual Funds
Arbitrage funds do not rely mainly on rising stock prices for returns. Instead, they earn from price gaps between the cash and futures markets, along with income from the debt portion of the portfolio.
Benefits include:
- Lower equity-market sensitivity: A cash position is generally paired with an offsetting futures position, limiting directional equity exposure.
- Relatively low volatility: These funds usually fluctuate less than unhedged equity funds.
- Equity-oriented taxation: Qualifying arbitrage funds receive the tax treatment pertinent to equity-oriented mutual funds.
- Useful for shorter horizons: They may suit investors looking to park money for several months rather than pursue long-term equity growth.
- Professional execution: The fund manager handles the cash-futures trades, debt allocation and settlement process.
The trade-off is important. Arbitrage opportunities are not constant, and returns can fall when the difference between cash and futures prices narrows.
Other risks include:
- Spread risk: Smaller arbitrage spreads can reduce possible returns.
- Execution risk: Prices may move before both sides of a trade are completed.
- Debt risk: The unhedged portion may hold money-market or debt instruments carrying credit and interest-rate risk.
- Liquidity risk: Market conditions may make certain trades harder to enter or unwind.
- No guaranteed return: A Low riskometer classification should not be read as capital protection.
Low risk also does not mean identical performance every year. Category-level measures (as of 31 July 2026) show that the relationship between return and risk has varied considerably over different periods.
| Risk Measure | 1 Year | 3 Years | 5 Years | 10 Years | 15 Years |
| Standard Deviation | 0.6843 | 0.5527 | 0.6934 | 0.831 | 0.8968 |
| Sharpe Ratio | 0.6478 | 1.0232 | 0.2708 | -0.0173 | -0.4293 |
| Sortino Ratio | 1.2277 | 2.0147 | 0.588 | 0.1231 | -0.4846 |
The three-year period shows the better risk-adjusted outcome in this data, with a Sharpe ratio above 1 and Sortino ratio above 2. The five-year figures are lower, which shows that return efficiency has not remained constant across periods.
Over 10 and 15 years, the Sharpe ratio falls to around zero or below it. These are category-level figures, so they should be used to understand historical behaviour rather than judge any individual scheme.
Who Should Consider and Avoid Arbitrage Funds?
Arbitrage funds have a fairly specific role. They are better suited to short-term capital management than long-term wealth creation.
You may consider arbitrage funds if you:
- have surplus money that may be needed within roughly three months to one year
- want lower volatility than conventional equity funds
- are comfortable with market-linked returns that are not guaranteed
- want an equity-taxed option for short-term allocation
- understand that returns depend partly on available arbitrage spreads
You may want to avoid them if you:
- want high long-term capital growth
- expect fixed or guaranteed returns
- may need the money within only a few days
- are investing purely because recent arbitrage returns appear attractive
- do not want any NAV fluctuation at all
Investors with long horizons generally have other categories designed specifically for capital appreciation. Arbitrage funds solve a different problem.
How to Choose an Arbitrage Mutual Fund
Past returns are only one part of the comparison. In arbitrage funds, where return gaps can be small, expense ratio, consistency and portfolio quality can make a noticeable difference.
These are the main factors to check before choosing a fund:
- Three-year and five-year returns: Compare both periods. A fund that leads over one year may not show the same consistency over longer stretches.
- Benchmark performance: See how the fund has performed against its arbitrage benchmark after accounting for costs.
- Expense ratio: Even a small cost gap matters here because arbitrage fund returns often sit within a fairly tight range.
- Risk: Check the riskometer and historical volatility. Two arbitrage funds can still behave differently.
- Portfolio: Look at the debt and money-market portion, especially credit quality and how concentrated the holdings are.
- AUM: AUM shows the size of the scheme and how much money it manages. Use it as one comparison point, not the only one.
- Minimum investment: SIP and lump-sum requirements differ from fund to fund, so check whether the entry amount suits you.
- Exit load: This matters more for short holding periods. Check how long you need to stay invested before redeeming without an exit load.
The final choice ought to match the holding period first. A marginally higher historical CAGR has limited value if the scheme’s costs, exit conditions or investment minimums do not suit you.
SIP vs Lump Sum for Arbitrage Funds
The table below compares the two investment methods for arbitrage funds.
| Factor | SIP | Lump Sum |
| Investment pattern | Fixed amount at regular intervals | One-time investment |
| Best suited for | Regular surplus cash | Existing surplus amount |
| Cash-flow requirement | Spread over time | Money available upfront |
| Cost averaging benefit | Possible, but less important for hedged arbitrage strategies | Not relevant |
| Convenience | Useful for recurring investments | Simpler for temporary cash parking |
| Main limitation | May be unnecessary for a short parking need | Entire amount is invested at once |
A SIP can work when money becomes available every month. It also keeps the investment process regular.
Cost averaging is less central here. Arbitrage funds intend to capture spreads rather than benefit directly from long-term rises in equity prices.
A lump sum may therefore be more natural when an investor already has idle money available. For example, money waiting to be used several months later can be invested at once rather than split artificially into monthly instalments.
Neither route changes the fund’s underlying strategy. The choice mainly depends on how and when the investor receives the money.
Direct vs Regular Arbitrage Funds
Direct and regular plans invest in the same underlying scheme portfolio. The key difference is how the investor accesses the fund and what they pay for it.
| Factor | Direct Plan | Regular Plan |
| Distributor involved | No | Yes |
| Expense ratio | Lower | Higher |
| Distributor commission | Not included | Included in scheme expenses |
| Portfolio | Same underlying portfolio | Same underlying portfolio |
| Suitable for | Investors comfortable choosing funds independently | Investors who want distributor assistance |
Direct plans have lower expenses because distribution commissions are not charged to them. Regular plans include distribution-related costs, resulting in a higher expense ratio and a different NAV.
This cost difference deserves attention with arbitrage funds. When return differences between schemes are relatively small, paying a higher expense ratio can take away a larger share of the return.
A direct plan is not automatically suitable for everyone. Investors who need help selecting, monitoring or managing funds may still prefer professional assistance through a regular plan.
Taxation of Arbitrage Mutual Funds
The table below shows the current capital gains tax treatment relevant to qualifying equity-oriented arbitrage mutual funds.
| Holding Period | Capital Gain | Tax Rate |
| Up to 12 months | Short-term capital gain | 20% |
| More than 12 months | Long-term capital gain | 12.5% on gains exceeding ₹1.25 lakh in a financial year |
Arbitrage funds that qualify as equity-oriented mutual funds receive equity capital-gains treatment. For units sold within 12 months, gains covered under Section 111A are taxed at 20%.
After 12 months, the gain becomes long-term. Under Section 112A, long-term gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5%, subject to the applicable conditions, including STT.
FAQs
Among the 10 funds covered in this article, the top five by five-year CAGR are Invesco India Arbitrage Fund at 6.96%, Kotak Arbitrage Fund at 6.87%, Edelweiss Arbitrage Fund at 6.83%, Tata Arbitrage Fund at 6.79% and SBI Arbitrage Opportunities Fund at 6.78%. Figures are as of 11 August 2026.
Arbitrage funds may suit investors looking to park money for a shorter period while accepting market-linked returns. The decision should depend on your investment horizon, liquidity needs and risk appetite rather than current returns alone.
Among the top 10 arbitrage funds by AUM covered here, Invesco India Arbitrage Fund has the highest five-year CAGR at 6.96% as of 11 August 2026. Past performance does not guarantee similar future returns.
Compare its three-year and five-year returns, benchmark performance, expense ratio, risk, AUM, portfolio and exit load. Also check whether its minimum investment and holding period fit your requirements.
Arbitrage funds may suit investors pursuing relatively low-volatility, market-linked returns for shorter investment horizons. They can also be considered by investors who understand that returns depend on available arbitrage opportunities.
Across arbitrage direct plans with a one-year track record, Quant Arbitrage Fund Direct Plan currently has the highest one-year return at 7.68%.
No. Arbitrage funds carry market, liquidity and execution risks, even though their equity exposure is largely hedged. Their returns are market-linked and are not guaranteed.
There is no single best time to invest. Arbitrage opportunities change with cash-futures price spreads, so consider your holding period, liquidity needs, costs and expected returns before investing.
It depends on what you want from the investment. An FD gives a fixed interest rate and eligible deposits are insured up to ₹5 lakh per depositor per bank. Arbitrage fund returns are market-linked, so they can move up or down over time.
