When markets turn unpredictable and you want returns without taking equity-style risk, Income Plus Arbitrage Funds emerge as one of the best low-risk mutual fund options available today. These funds offer tax-efficient returns, high liquidity, and low volatility, making them ideal for investors looking to park money for the short term.
Unlike traditional equity funds, arbitrage funds don’t rely on stock price movements. Instead, they earn through a proven approach: cash-futures arbitrage, where they capture price differences between the two markets.
What Is an Income Plus Arbitrage Fund?
An Income Plus Arbitrage Fund is a type of equity mutual fund that makes use of short-lived price gaps in the market.
How it works?
A stock trades at one price in the cash market
- The same stock trades at a slightly different price in the futures market
- The fund buys low and sells high simultaneously
- The price spread becomes a near-risk-free gain
This mechanism allows the fund to behave like a low-risk investment option, even though it carries equity taxation benefits.
Key Benefits of Income Plus Arbitrage Funds
1️⃣ Low Volatility & High Stability
Because the fund takes hedged positions, fluctuations are very limited. This makes it a strong alternative to liquid funds during volatile market phases.
2️⃣ Tax-Efficient Investment Option
Although the behaviour resembles debt funds, arbitrage funds are taxed as equity, which often results in better post-tax returns for investors in higher slabs.
3️⃣ Ideal for Short-Term Parking (1–6 Months)
Investors often use arbitrage funds to park surplus money temporarily, making them suitable for short-term investment needs.
4️⃣ Better Than Savings Accounts
Arbitrage funds generally deliver better returns than traditional savings accounts, especially when markets witness strong price spreads.
5️⃣ Useful for Individuals, Corporates & HNIs
Treasury desks often prefer arbitrage funds because they combine safety, liquidity, and tax efficiency.
Who Should Consider Arbitrage Mutual Funds?
You may consider this category if you are:
- Looking for short-term, low-risk investment options
- Parking idle funds for 1 to 6 months
- Seeking a tax-efficient alternative to debt funds
- Wanting an option with very low volatility
- Searching for stable mutual fund returns without market swings
This makes them suitable for retail investors, corporates, and HNIs alike.
Top 3 Income Plus Arbitrage Funds to Consider in 2025 (Expert Picks)
Below are three strong performers known for consistent delivery and efficient arbitrage execution:
1️⃣ Kotak Income Plus Arbitrage Omni FOF
One of the largest AUM managing in the category (almost 7000 cr.) . The scheme further invest debt money into corporate debt, short term debt to earn higher interest while having SDL of 2032 maturity to take interest rate move advantage also.
2️⃣ ICICI Pru Income Plus Arbitrage Active FOF
The scheme has diversified into Corporate bonds as well as G-sec segment. It makes it play with Gilt for interest rate while corporate bond help to earn higher interest on bonds.
3️⃣ Bandhan Income Plus Arbitrage Active FOF
The fund is playing off with corporate bond funds with average maturity of 3.9Years. It will see that the investor does not have long term interest rate risk.
Why Income Plus Arbitrage Funds Stand Out Today
In a world where uncertainty is constant, these funds offer a rare combination of:
- Low-risk returns
- Tax-efficient growth
- High liquidity
- Minimal volatility
This makes them one of the most practical options for short-term, low-risk investors wanting predictable outcomes.
Final Thoughts
If you’re looking for a way to keep your short-term money active without taking on heavy market swings, Income Plus Arbitrage Funds offer a practical, low-volatility solution. They help you earn steady, tax-efficient outcomes while ensuring your funds remain accessible whenever you need them.
To explore how this category fits into your financial planning Invest Now and make your short-term money work smarter.
And if you’d like deeper clarity on Arbitrage strategies,
👉 Read our earlier blog on Arbitrage Funds for a complete understanding of how the category functions across different market conditions.
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