Bank of India Arbitrage Fund Direct-Growth: Key Insights, Returns, Risks, and More

With the rise in volatility in the stock markets, investors look for safer options. While debt funds offer great security that comes at the cost of lower returns. This is where hybrid funds came in to bridge the gap. This Bank of India Arbitrage Fund Direct-Growth is a hybrid fund that offers a balance in the return on investment and risk of investment. 

This article will help you navigate through the details of the Bank of India Arbitrage Fund. You will be reading all the insights about this fund, starting from its returns, to the risk involved, different financial metrics you can evaluate from here, and more. 

Fund Management and Objectives

Bank of India Arbitrage Fund Direct-Growth is a hybrid fund that invests in different arbitrage opportunities. It invests in the price difference between a stock and its future and within the derivative segment as well. The objective of the fund is to generate a regular stream of income for the investors while capital appreciation takes place. 

The fund is managed by Firdaus Marazban Ragina from 1 October 2024. He has years of experience in the mutual fund space and before joining here, he was associated with renowned broking firms and fund houses such as IL&FS Broking Services, UTI Securities, Avenues Securities, and more. 

How the Bank of India Arbitrage Fund Works?

Arbitrage as the name suggests is a type of investing or trading where the difference in prices of an investment instrument is utilized to generate profits. Here, in this fund, the same process is applied where the price difference between a stock and its future is taken to generate profits. Similarly, arbitrage between two derivatives of the same underlying can also be used to generate income. 

While this sounds simple, the fund manager has to do simultaneous buying and selling of the investment instruments and in this Bank of India Arbitrage Fund, the fund manager makes the most use of the cash and cash equivalents. The use of equity in this fund is negligible while debt instruments have a significant portion. 

Performance and Returns (As of 29 Nov 2024)

Bank of India Arbitrage Fund Direct-Growth was launched on 18 June 2018 and the return since launch has been around 5.16%. The returns across different time frames are as follows – 

5 Year Return: 4.84%

3 Year Return: 5.80%

1 Year Return: 7.63%

YTD Return: 7.05%

6 Month Return: 3.71%

3 Month Return: 1.78%

The Bank of India Arbitrage Fund consistently delivers higher returns when compared to the CCIL T Bill Liquidity Weight. The performance of the fund has remained consistent over the year and helps investors generate regular income. 

That said, the fund’s performance falls a little short of the average of the category. If you look at the average YTD return of the hybrid arbitrage funds then the Bank of India Arbitrage Fund has delivered 0.32% less return. Similarly, the 3-year and 5-year returns are lesser than that of the average category return. 

Investment Allocation (As of 31 Oct 2024)

The Bank of India Arbitrage Fund portfolio is quite interesting as it holds 76.17% cash and cash equivalents with a share of 24.25% of debt instruments, and equity is negative as of now, around -0.42%. 

Here is the investment allocation according to market capitalization – 

• Giant & Large Cap: 92.96%
• Mid Cap: 7.04%

Investment allocation as per Ratings – 

• Cash Equivalents – 76.17%
• AAA – 12.55%
• SOV – 11.66%
• Unrated/ others – 0.03%

The top holdings of the Bank of India Arbitrage Fund include – 

Equity Segment 

• HDFC Bank
• Bank Of Baroda
• Ambuja Cements
• Canara Bank
• Hindustan aero

Debt Segment 

• Bank of India Liquid Direct – Growth
• Reserve Bank of India T-Bills 364-D 24/04/2025
• Reserve Bank of India T-Bills 182-D 17/01/2025
• Reserve Bank of India T-Bills 364-D 10/07/2025
• Reserve Bank of India T-Bills 364-D 27/03/2025

Key Metrics 

As of 31 October 2024, the fund has an expense ratio of 0.21%, which is lower than the category average of 0.33%.

Fund Details	Information
AUM (Assets Under Management)	₹ 41 Crore as of 31 October  2024
Category	Hybrid Fund
Fund Managers	Firdaus Marazban Ragina
Exit Load	0.5% for redemption of more than 10% units within 30 days
Entry Load	Nil
Minimum Investment	₹5000(Lump sum)₹ 1000 (SIP)
Benchmark	NIFTY 50 Arbitrage TRI

The Bank of India Arbitrage Fund Growth has delivered consistent returns over various periods – (as of 29 Nov 2024)

• 5 Year Return: 4.84%
• 3 Year Return: 5.80%
• 1 Year Return: 7.63%
• YTD Return: 7.05%
• 6 Month Return: 3.71%
• 3 Month Return: 1.78%

The Bank of India Arbitrage Fund NAV as of 2 December 2024 stood at ₹ 13.8466. 

Risk and Performance of the Bank of India Arbitrage Fund 

This fund is classified as a ‘Low Risk’ fund, which indicates that the fund offers a stable return usually without much volatility. 

1. Standard Deviation (Std Dev %): It shows how much the returns vary from the average returns generated by the funds themselves. The higher this number, the more it fluctuates.

This fund has a standard deviation of 0.69% while the average standard deviation of the hybrid arbitrage funds is around 0.65%. This indicates that the Bank of India Arbitrage Fund is less volatile than its peers. However, the difference is real with the CCIL T Bill Liquidity Weight, which has a standard deviation of around 0.41%. This indicates that the fund is more volatile than the CCIl T-Bills. 

2. Sharpe Ratio: This ratio indicates the return you get for the risk you’re taking. A higher number means better risk-adjusted returns.

Currently, this fund has a Sharpe ratio of -0.34, which indicates that it has underperformed, compared to its benchmark. It has also underperformed compared to its peers as the average Sharpe ratio for the category is around 0.86%. That said, the CCIL T-Bill liquidity weight has a negative 5.1% Sharpe ratio that is much lower than these low-risk funds offering a stable return. 

3. Sortino Ratio: It is similar to Sharpe but only looks at downside risk (the risk of losing money).

Similar to the Sharpe ratio, this fund has more downside risk compared to its peers. While the average for the category stands at 1.03%, this Bank of India Arbitrage Fund Direct – Growth has a negative 0.43% Sorting ratio. 

4. Beta: This ratio indicates the volatility of the fund’s performance, compared to similar funds in the market. The lower the Beta, the more predictable the returns are, and vice versa. It helps in comparing funds. 

Bank of India Arbitrage Fund is a bit more volatile than its peers as it has a Beta of 0.96% while the average for the hybrid arbitrage fund category is 0.81%. 

5. Alpha: It measures the extra return the fund gives above the market’s average return.

The fund again has a lower alpha than its peers, which means the extra returns offered by the fund are comparatively lower. The average for the category is around 2.25% while that of the fund is only 1.77%.  

Taxation for Bank of India Arbitrage Fund 

If you’re investing in the Bank of India Arbitrage Fund, here’s how your returns will be taxed:

1. Short-Term Gains – If you sell the fund units within 1 year of the date of investment, a 20% tax will be levied on the entire return generated during the period. 
2. Long-Term Gains – If you sell the fund units after one year, any profit generated over and above ₹ 1.25 lakh will be taxable at a 12.5% rate. The same rate will be applicable for any investment tenure above 1 year. 

So, the longer you hold your investments, the better returns you can expect and the lesser effect of taxes!

3. Taxes on Dividends – Dividends earned if any will be taxable at the hands of investors as per their tax slabs. If the dividend income surpasses Rs. 5000 in a financial year, then the fund house will deduct 10% TDS before disbursing the dividend into the account of the investor. 

Minimum Investment and Lock-in Period

The minimum investment amount in the Bank of India Arbitrage Fund is ₹5000 for lump sum and for SIP, it is ₹ 1000. There is no lock-in period for the Bank of India Arbitrage Fund Direct – Growth.

Invest in the Bank of India Arbitrage Fund — SIP or lump sum at zero brokerage for life!

How to Invest in Bank of India Arbitrage Fund Direct?

You can invest in the Bank of India Arbitrage Fund Direct-Growth plan with Shoonya. 

Shoonya offers a free Demat account, lifetime zero brokerage trading, advanced trading tools, 100+ technical indicators, and much more!

Investing in Lump Sum Mutual Funds through the Shoonya Web Platform

Here’s a quick guide on how to invest in lump sum mutual funds through the Shoonya web platform:

1. First, you must log in to your Shoonya account at trade.shoonya.com. From the “Orders” section, click on “MF order.”
2. Search for the fund you wish to invest in; in this case, the Bank of India Arbitrage Fund Direct-Growth plan.
3. Choose “Fresh” for a new investment and enter the amount you want to invest.
4. You can complete your purchase by clicking the “Purchase” button.
5. You will receive a payment link on your registered email. Use the link to make the payment.

After payment, your mutual fund units will be allotted to your Demat account within T+2 days.

Note: You can only make the payment using the bank account registered with your Demat account.

Setting Up an SIP for Mutual Funds

If you prefer a Systematic Investment Plan (SIP) for Bank of India Arbitrage Fund Direct Plan-Growth plan, you must follow these steps:

1. First, you need to log in to your Shoonya account at trade.shoonya.com. Go to “Orders” and click on “XSIP.”
2. Find the mutual fund for which you want to set up an SIP. In this case, the Bank of India Arbitrage Fund Direct-Growth plan.
3. If this is your first SIP with Shoonya, you need to create a Mandate ID. 

For that, you must enter the mandate amount and the validity date (until you want to keep your SIP active).

4. You must submit the details, and you’ll receive a Mandate authentication link via email. Approval generally takes 24 hours.

Once your Mandate is approved, you can follow these steps to set up your SIP:

1. Go to “XSIP,” enter the SIP amount, and select “Fresh” as the transaction type.
2. Choose the date when the SIP will be debited directly from your registered bank.
3. The approved Mandate ID will auto-reflect.
4. Choose “Monthly” for monthly debits and specify the number of installments (e.g., 24 installments for a 2-year SIP).

If you do not want to forget your SIPs and invest systematically, the SIP method can be most suitable for you. 

Why Invest in the Bank of India Arbitrage Fund?

The primary reason for investing in this fund can be its lower risk profile, which can help in diversifying your investment portfolio, and lower the risk of the entire portfolio. The fund somewhere enjoys a liquid fund’s risk-return profile while the taxes are levied as of an equity fund, which helps the post-tax returns to be significantly higher when compared to actual liquid funds, isn’t that great? 

In addition, all the positions in this fund are hedged which leaves no ground for direct equity exposure of the investor via this fund and hence there is no market risk as well. 

Finally, this fund possesses no credit risk as well which needs to be considered too. 

The fund has been consistent with its return over the years, which can be one of the crucial factors to consider. 

Suitability of this Fund| Who Should Invest?

The Bank of India Arbitrage Fund Direct is suitable for investors who:

• Are looking for lower-risk or risk-averse investors 
• Want to make a profit out of market inefficiencies 
• HNIs, Retail investors, corporates with surplus funds seeking short-term deployment options
• Are looking for a risk-return profile like a liquid fund
• Seeking taxation like an equity fund with a higher post-tax return

Conclusion

So, if you are someone looking to invest in mutual funds with lower risk but also want to enjoy the taxation of an equity fund, then this Bank of India Arbitrage Fund is apt for you. However, consider all the key metrics, historical performance, and risk-return ratios before setting up the SIP, or investing a lump sum. 

FAQs| Bank of India Arbitrage Fund Direct Plan-Growth plan

Source: MoneyControl

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.