Arbitrage fund returns closely track short-term risk-free market interest rates. This is because arbitrage opportunities exist when there is a spread between cash and futures markets which is similar to or better than short-term risk-free market interest rates. Any yields that are substantially higher than short-term market interest rates, get quickly arbitraged away – leading … Read more
With the change in taxation of debt funds (gains to be taxed at an investor’s income tax-slabs), we normally recommend investors invest in Arbitrage funds instead (due to their superior taxation leading to better post-tax returns). This is discussed in greater detail in our blog: Arbitrage Funds: Why Post-tax Yields are Superior to Debt Funds? … Read more
Investors often view state government bonds, to be very low-risk, given the fact that they are backed by the government. Out here, it is important to understand the difference between a central government bonds & the state government bond. The central government technically has the power to ‘print money’ (via the RBI), and it is … Read more
Long-short AIF’s that aim to deliver positive absolute returns that are uncorrelated to market conditions, are a popular and fast growing segment in the Indian alternatives industry. However, due to the use of derivatives, the taxation of these funds are unfavourable since gains are typically considered speculative income (tax rate of 35% in case of … Read more
Bond prices fall when interest rates move up (this is true even in very low duration funds with low interest rate sensitivity). Now, if the fund has an yield of 4.5% (it will earn 4.5% through the year) – but if interest rates move up immediately post investing the Mark-to-Market hit of (say for example … Read more
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