Motilal Oswal offers minimal expense of 0.10% for first year on new arbitrage fund
- Industry data shows that the average total expense ratio for arbitrage funds is around 0.33%
Motilal Oswal Asset Management Company (MOAMC) has launched a new arbitrage fund with a minimal expense ratio—comprising the management fee and operational expenses—of 0.10% for the first year.
The new fund offer (NFO) is open for subscription from 16-19 December. This includes operational expenses and a capped management fee of 0.03%, positioning it as one of the most competitively priced options in the arbitrage fund category.
Industry data shows that the average total expense ratio (TER) for arbitrage funds is around 0.33% (33 basis points). MOAMC’s decision to waive most of its fund management fees for the first year, charging only 0.03%, is expected to appeal to cost-conscious investors. The remaining 0.07% covers operational costs.
“Our aim is to provide investors with an efficient, low-cost option for short-term investments. By capping management fees at 0.03% and maintaining a TER of just 0.10% for the first year, we’re setting a new benchmark in cost-efficiency within the arbitrage fund category," said Akhil Chaturvedi, executive director and chief business officer, MOAMC.
Chaturvedi suggested that the fund may retain its low TER structure even after the first year, ensuring sustained cost benefits for investors.
Why arbitrage funds?
Arbitrage funds are hybrid mutual funds designed to exploit price differences between the cash and derivatives markets of the same security.
By buying in one market and selling in another simultaneously, these funds aim to generate risk-free returns. They are particularly appealing to investors seeking short-term, low-risk parking for their funds.
One of the key advantages of arbitrage funds is their tax efficiency compared to debt funds. While returns from debt funds are taxed as per an investor’s income tax slab, arbitrage funds enjoy equity taxation benefits.
Long-Term Capital Gains (LTCG): Taxed at 12.5%.
Short-Term Capital Gains (STCG): Taxed at 20%.
Tax exemption: Gains up to ₹1.25 lakh annually on equity-oriented funds are tax-free.
This makes arbitrage funds a smart choice for tax-savvy investors.
Performance overview
Arbitrage funds typically deliver stable yet moderate returns, appealing to conservative investors. As of 10 December, the category average returns were:
1 Year: 7.34%
3 Years: 6.02%
5 Years: 5.12%
10 Years: 5.84%
(Source: Value Research, Returns as on December 10, 2024)
Final thoughts
MOAMC’s commitment to maintaining a low TER post the first year positions the fund as a long-term, cost-effective option for investors.
Opting for the direct plan further maximizes cost savings. However, while arbitrage funds are low-risk, they may not align with long-term wealth creation objectives. Investors are advised to align their choices with their financial goals and risk appetite.
Disclaimer: An earlier version of this article stated that the fund house would offer a zero-expense structure for the first year of the new arbitrage fund. The company has since clarified that it will offer a minimal expense structure instead.
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Business NewsMoneyMotilal Oswal offers minimal expense of 0.10% for first year on new arbitrage fund
First Published:11 Dec 2024, 01:46 PM IST
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