Archive · 23 Sep 2025
Arbitrage Funds Gain Traction Over FDs for Tax Efficiency
Imagine you have some money you want to save.
Instead of putting it in a regular savings account or fixed deposit (FD), you could use an arbitrage fund.
These funds try to make money from small price differences in the market.
For tax purposes, they're treated like investments in stocks.
If you hold them for a while, the taxes are lower compared to the higher tax you pay on FD interest.
Arbitrage funds are usually safer than stocks but not as safe as FDs, which guarantee a return.
They can be a good choice if you want your money to grow a little faster after taxes.
Arbitrage funds are gaining popularity as a potential alternative to fixed deposits (FDs).
FDs offer guaranteed returns, but interest is taxed at an investor's marginal rate.
Arbitrage funds are treated as equity-oriented mutual funds for tax purposes.
Long-term gains are taxed at 12.5% above an exemption threshold; short-term gains at 20% plus cess.
Arbitrage funds provide greater flexibility than FDs with easier redemption options.
- Who
- Retail investors and taxpayers.
- What
- Arbitrage funds are emerging as a tax-efficient alternative to fixed deposits and savings accounts.
- When
- Recent trends show increasing interest.
- Where
- N/A
- Why
- Due to potentially better post-tax returns and flexibility.
- Arbitrage Fund Strategy
- Invests in cash and futures markets to capture price differences.
- Tax Treatment
- Treated as equity-oriented mutual funds.
- Long-Term Capital Gains (LTCG)
- Gains over ₹1.25 lakh are taxed at 12.5%.
- Short-Term Capital Gains (STCG)
- Taxed at 20% plus cess (if held less than 1 year).
- FD Interest Taxation
- Taxed at investor’s marginal slab rate.
- Liquidity
- Arbitrage funds offer easier redemption than FDs, with potential exit loads.