SBI Arbitrage Fund

The SBI Arbitrage Fund is a hybrid fund that works on a dual motive of gaining capital and generating regular income for its investors. This is an open-ended fund whose significant investment is in the arbitrage market and other debt or money market instruments.

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Fund in Brief

SBI Arbitrage Fund is managed by SBIMF (the State Bank of India Mutual Fund). The Fund House has been successfully running in the market for around 14 years. It presently holds INR 3338.8 crores of AUM (assets under management). It invests about 85% of its funds in arbitrage opportunities in stocks or other stock-related options and derivatives. The remaining 15% is invested in other money market instruments.

The SBI Arbitrage Fund comes in the following two versions:

  • SBI Arbitrage Fund – Regular Plan
  • SBI Arbitrage Fund – Direct Plan

The Direct Plan has a higher return percentage of around 0.45% as compared to the regular plan. It is suitable for those investors who route their purchases directly with the fund and not through any distributor. The Regular Plan is for those investors who need distributors in between for routing their purchases.

The top shareholders of this fund are Bharti Airtel Lt., Adani Ports and Special Economic Zone Ltd, Government of India, JSW Steel Ltd, and State Bank of India.

The two versions of the plan come with two variants:

  • Growth option - It makes the fund automatically reinvest the dividend earned.
  • Income Distribution and Cash Withdrawal (IDCW) option - It  gives the investor a choice to either reinvest or withdraw the dividend earned.

Fund Facts

Fund name

SBI Arbitrage Fund

Fund House

State Bank of India Mutual Fund House

Fund Category

Hybrid type

Open/close

Open-ended

Risk factor

Low risk

Launch date

For the regular plan – 3 November 2006

For the direct plan – 1 January 2013

Benchmark 

Primary benchmark – NIFTY 50 Arbitrage Index

Secondary benchmark – Crisil 1 Yr T-Bill Index

Investment Amount

INR 5,000 for initial investment

INR 1,000 for additional investment

Entry load

Nil 

Exit load

0.25% exit load for exit within 1 month of allotment.

For exit after 1 month of allotment, the exit load is Nil.

Lock-in

No lock-in

Investment Objective

The central objective of the SBI Arbitrage Fund is to multiply the surplus in a short time and generate regular income for the investors. It identifies profitable arbitrage opportunities between the spot and derivatives market and invests in equities or other money market instruments. This includes investing in currencies, commodities, or other bonds.

Being an arbitrage fund, it carries minimal risk because securities are purchased and sold side by side. They are mostly done when the market conditions are in favour. This saves them from the uncertain fluctuations of the traditional equity market. 

Arbitrage funds also involve investing in the future markets, which is carried out after analyzing the existing market trends and future predictions.

Moreover, the equity exposure of the fund is fully hedged in this fund. This minimizes the possible risks to a great level. Other than all this, the fund house keeps a constant tab on the market. It's the combined effect of all these factors that this fund has consistently performed well.

However, investors must note that the mutual fund market always carries some unpredictable risks. Furthermore, there is no guarantee that all the said objectives of the fund will be realized at all times.

Fund Summary

  1. SBI Arbitrage Fund Regular Plan

    • Risk – Low
    • Expense ratio – 0.9%
    • Net Asset Value (NAV) – INR 13.92 (as of 18 June 2021)
    • Returns – 3.18% (1 year)
  2. SBI Arbitrage Fund Direct Plan

    • Risk – Low
    • Expense ratio – 0.45%
    • Net Asset Value (NAV) –  INR 14.90 (as of 18 June 2021)
    • Returns – 3.64% (1 year)

    The investor is provided with the Growth and the IDCW options, wherein the Growth option remains default. Under the IDCW option, the investor can choose from IDCW payout or IDCW reinvestment. 

Fund Returns Summary

  1. Return summary of the SBI Arbitrage Fund for the regular plan:

    Time

    Percentage Returns

    6 months

    1.88%

    1 year

    3.17%

    3 year

    4.81%

    5 year

    5.29%

  2. Return summary of the SBI Arbitrage Fund for the direct plan:

    Time

    Percentage Return

    6 months

    2.11%

    1 year

    3.64%

    3 year

    5.32%

    5 year

    5.84%

Pros and Cons

Pros

Cons

The arbitrage market is safe as compared to the others.

Not suitable for investors looking for long-term returns.

Low risk factor

The fund’s capability to generate risk-adjusted returns is low.

The expense ratio is as low as 0.9%.

Repurchase available

Benefits of the SBI Arbitrage Fund

  • Low risk: The SBI Arbitrage Fund runs on a low risk as compared to other funds. The arbitrage fund is a hybrid fund and its investments are spread across varieties of securities that include high-risk and low-risk instruments. They are balanced out perfectly, hence minimizing all possible risks.
  • Multiplying money in a short time: Any investor with a little surplus wanting to multiply the funds can choose this fund. Additionally, there is low risk. Therefore, there is a little extra assurance that the principal amount would be safe.
  • Long run in the market: The fund has been in the market for 14 years and has faced time tests. This means it has met the investors' expectations, and hence, it is a reliable fund. 
  • Ability to protect losses: This fund has a remarkable ability to preserve the fund's money from market fluctuations. It does so by shifting its investments from securities facing fluctuations to securities that look stable. This becomes possible because of the hybrid character of the fund.

Fund House Details

The SBIMF manages the SBI Arbitrage Fund. State Bank of India Mutual Fund House is one of the oldest and most trusted fund houses with experience of over 30 years in the mutual funds market. 

SBIMF operates as the most trusted asset manager. They educate their customers about the funds and devise fund plans that could benefit the customers. They aim at simplifying the decision-making when it comes to investing in mutual funds for the investors. They use comprehensive techniques for managing risks and hence, have a good risk management record.

Two major asset managers hold the holdings of SBIMF:

  • The State Bank of India – with 63% shares in the fund and the largest bank of India.
  • AMUNDI is one of France's best asset managers, with the remaining 37% shares in the fund.

Who Should Invest in the SBI Arbitrage Fund?

  • Investment in arbitrage market: The people who have knowledge of the arbitrage market and understand its benefits can invest in this fund. Since they understand the functioning of the market well, it will be easier for them to track the progress of their investments better.
  • Short-term investment: It is an excellent fund for people who want to invest their surplus for a short time while gaining good returns. It could further be used for reinvestment or fulfilling other requirements.
  • Medium to Low risk appetite: The high-risk factors involved in mutual funds are why many people avoid them. However, the arbitrage fund is safe from all that. For people interested in investing but with no risks, arbitrage fund is an ideal option.

In Conclusion

To wrap it all, the SBI Arbitrage Fund is an excellent short-term fund that has been in the market for a long time. It has performed well in the market and has provided good returns to its investors. 

With the exceptional risk management techniques and hybrid character of the fund, it has remained safe from market fluctuations. With such continued dedication and expertise from SBIMF, the future of the fund looks hopeful and bright.

FAQ's

  • Q. What are hybrid funds?

    Ans: Hybrid funds are those funds that invest in a mixture of securities. It includes everything – stocks, bonds, currencies, commodities, etc.
  • Q. What is the arbitrage market?

    Ans: The arbitrage market deals with purchasing from one market and selling it in another. This market takes advantage of the differences in the market conditions. 
  • Q. What to choose between the Growth and IDCW options?

    Ans: The growth option doesn't allow withdrawing any money from the fund during the investment period. Therefore, if an investor feels they could need to withdraw money, then the IDCW option should be chosen. On the other hand, if the need for withdrawing is not felt, then the growth option would be suitable.
  • Q. Do I need to consult an investment advisor before investing? 

    Ans: The choice of the fund depends upon the investor’s interest and aims of investment. However, a financial advisor can give better and timely investment advice as per the market scenario. So, one can consult them for better understanding.
  • Q. How to apply for the SBI Arbitrage Fund?

    Ans: One can apply online through the SBIMF website or visit an SBI MF branch office for a consultation.
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