LIC Mutual Fund launches open ended scheme for investing in arbitrage

State-run LIC Mutual Fund on Friday launched an open-ended scheme for investing in arbitrage opportunities as a new fund offer (NFO) called "LIC MF Arbitrage Fund" that will close on January 18. In a statement here, the company said that investors can make a lump sum investment in the fund being managed by Yogesh Patil (Equity) and Marzban Irani (Debt).

"The investment objective of the scheme is to generate income by taking advantage of arbitrage opportunity that potentially exists between the cash and derivative markets and within the derivative segment, along with investments in debt securities and money market instruments," it said. "The fund manager will use a disciplined quantitative analysis while accessing the arbitrage opportunities."

According to the statement, the scheme will hold a minimum of 65 per cent in equities and equity-related instruments, derivatives including index futures, stock futures, index and stocks options, as well as 0 to 35 per cent in debt and money market instruments, including investment in securitized debt.

"Since arbitrage funds maintain an average exposure of higher than 65 per cent in equity and equity-related instruments, they are treated as equity funds for taxation purposes," it said. "Investors mostly have a higher interest in arbitrage funds, from the time long-term holding period for debt funds was augmented from one to three years," it added.

The Life Insurance Corp (LIC) associate company said the fund is beneficial for investors who are looking for income through arbitrage between cash and derivatives and capital appreciation with moderately low-risk appetite.

(With inputs from agencies.)