Arbitrage funds in India attract ₹89,400 crore in inflows as investors seek short-term options

Arbitrage funds in India have seen significant growth, attracting ₹89,400 crore in inflows over the past year. These funds now hold ₹2.35 lakh crore in assets, making up 53% of net inflows in the hybrid category. Despite a recent dip in returns, arbitrage funds returned 7.25% over the last year, outperforming liquid and overnight funds. Investors are drawn to their tax efficiency and higher returns compared to traditional debt funds. Fund managers note that returns have decreased by 25-50 basis points recently due to increased inflows and falling short-term rates. However, they expect returns to stabilize around 6.5-7% in the coming months.