{"id":49055,"date":"2025-05-05T19:05:15","date_gmt":"2025-05-05T13:35:15","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=49055"},"modified":"2026-02-24T20:27:03","modified_gmt":"2026-02-24T14:57:03","slug":"income-plus-arbitrage-fund-of-funds","status":"publish","type":"post","link":"https:\/\/www.tatacapital.com\/blog\/wealth-services\/income-plus-arbitrage-fund-of-funds\/","title":{"rendered":"What is the Income Plus Arbitrage Fund of Funds?"},"content":{"rendered":"\n

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When you\u2019re looking for ways to grow your money without taking too much risk, most people turn to fixed deposits or debt mutual funds. But what if there was a way to get a bit more from your investments without stepping too far into riskier options? That\u2019s where the Income Plus Arbitrage Fund of Funds (FoFs) come in. These funds are designed for investors who want a little more than traditional debt returns but still want to avoid the ups and downs of the stock market. To know more about these schemes, keep reading.<\/p>\n\n\n\n

What is the Income Plus Arbitrage Fund?<\/strong><\/h2>\n\n\n\n

The Income Plus Arbitrage Fund of Funds is an open-ended scheme designed to generate regular income and capital appreciation by combining fixed income with arbitrage mutual fund schemes. These funds don\u2019t invest directly in stocks or bonds. Instead, they invest in other mutual fund schemes, mainly debt and arbitrage funds.<\/p>\n\n\n\n

Presently, as we write, there are a total of 11 funds in this category. Either the AMC has restructured an old fund into an Income Plus Arbitrage Fund of Funds, or they have launched a new fund.<\/p>\n\n\n\n

Key features of the Income Plus Arbitrage Fund<\/strong><\/h2>\n\n\n\n

Below are some unique characteristics of these funds.<\/p>\n\n\n\n

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  1. Diversified investment approach<\/li>\n<\/ol>\n\n\n\n

    These FoFs invest in a combination of debt instruments like treasury bills, bonds, and equity arbitrage mutual funds. This helps keep returns steady and risk levels low.<\/p>\n\n\n\n

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    1. Expense limit<\/li>\n<\/ol>\n\n\n\n

      The maximum Total Expense Ratio (TER) for these schemes is fixed at 2%, which limits how much investors are charged for fund management.<\/p>\n\n\n\n

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      1. Set asset allocation guidelines<\/li>\n<\/ol>\n\n\n\n

        The allocation to debt-based assets will not exceed 65% of the total assets, while at least 35% will be invested in arbitrage-based equity mutual funds at all times.<\/p>\n\n\n\n

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        1. Reduced equity risk and volatility<\/li>\n<\/ol>\n\n\n\n

          Despite including equity, the use of arbitrage minimizes the risks from market fluctuations by capitalizing on price differences rather than predicting market movements.<\/p>\n\n\n\n

          How does the Income Plus Arbitrage Fund work?<\/strong><\/h2>\n\n\n\n

          An Income Plus Arbitrage Fund is a hybrid mutual fund that aims to provide a stable income with lower risk. It primarily invests in debt instruments, such as bonds, government securities, and money market instruments, to earn regular interest income. A small portion of the fund is also invested in arbitrage opportunities in the equity market.<\/p>\n\n\n\n

          Arbitrage refers to buying shares in the cash market and selling the same shares in the futures market at a higher price. The price difference helps generate extra returns with very low risk. Since both buying and selling happen simultaneously, the impact of market movement is minimal.<\/p>\n\n\n\n

          The fund combines debt income and arbitrage gains to offer better returns than pure debt funds. It also maintains a relatively lower risk. Investors looking for steady returns with moderate risk should consider investing in the fund.<\/p>\n\n\n\n

          Advantages and risks of Income Plus Arbitrage Fund of Funds<\/strong><\/h2>\n\n\n\n

          Income Plus Arbitrage Fund of Funds has both advantages and risks. Here\u2019s a look at each of them to help you make an informed financial decision.<\/p>\n\n\n\n

          Advantages:<\/p>\n\n\n\n