Axis Arbitrage Fund Direct Growth: In-Depth Analysis

The excitement of high-risk, high-reward investments is hard to ignore. However, just as a balanced diet is crucial for good health, having stable investment options in your portfolio is essential. The Axis Arbitrage Fund Direct Growth is a prime example of such a stable investment. It offers a reliable way to grow your money while managing risk.

Launched in 2014, this fund uses arbitrage strategies to exploit price differences in various markets. This equity fund has a track record of outstanding returns. Axis Arbitrage Fund Direct Growth is an open-ended scheme investing in arbitrage opportunities. 

If you’re looking to enhance your portfolio’s stability, the Axis Arbitrage Fund is a smart choice for balanced investing.

In this blog, we’ll explore the Axis Arbitrage Fund’s NAV, its benefits, and how to invest in the Axis Arbitrage Fund.

Fund Management and Objectives

The Axis Arbitrage Fund Direct Growth is managed by a skilled team including Devang Shah, Ashish Naik, Karthik Kumar, and Sachin Jain. The primary goal of the fund is to provide long-term capital appreciation through its arbitrage strategy.

The Axis Arbitrage Fund – Direct Plan-Growth focuses on generating income through low-volatility strategies. It capitalises on arbitrage opportunities in both cash and derivative segments of equity markets. The fund also uses derivative-based strategies and invests in debt and money market instruments.

Performance and Returns

Axis Arbitrage Fund’s Compound Annual Growth Rate (CAGR) since launch is 6.66%. Over the past one, three, and five years, it has achieved CAGR returns of 8.35%, 6.61% and 5.95%, respectively. These results highlight the fund’s ability to offer consistent returns even in volatile market conditions.

With an average annual return of 6.66%, it has certainly outperformed its category average of 5.37%. With Assets Under Management (AUM) of ₹5605 Crore, as of 31 Jul 2024(in Cr.), it is smaller than the category average. However, it maintains a lower expense ratio of 0.31% compared to the 0.71% category average.

This combination of solid returns, efficient cost management, and low risk makes it a compelling choice for investors seeking stability and performance.

Ready to invest in the Axis Arbitrage Fund Direct Plan? Start now with zero brokerage!

Investment Allocation

The Axis Arbitrage Fund – Direct Plan-Growth portfolio employs a diversified approach. It focuses on various sectors, including Financial Services, Telecommunications, and Industrial sectors.

As of 16th August 2024, it has the following top holders:

• With a 6.81% allocation, HDFC Bank—one of the top 10 private banks in India—is the fund’s largest holding. Its significant presence in the Financial Services sector supports the fund’s stability and growth.
• Holding 3.59%, Reliance Industries contributes considerable value through its diverse business operations.
• Allocated 3.21%, Bank of Baroda enhances the fund’s portfolio with its strong performance in the Financial Services sector.
• With a 2.82% stake, Vodafone Idea adds value through its presence in the telecommunications sector.
• Holding 2.32%, Tata Power provides stability with its role in the Industrial sector.

These key holdings reflect the fund’s strategy of investing in prominent companies.

Key Metrics

The Axis Arbitrage Fund Direct Growth showcases key metrics that highlight its strong market performance and investor confidence. The fund has a competitive expense ratio of 0.3%, which is lower than the category average, making it a cost-effective option for investors. With Assets Under Management (AUM) of ₹5,605 crore, the fund holds a significant market presence, reflecting its popularity among investors. The Axis Arbitrage Fund NAV was ₹17.6526 as of August 19, 2024.

In terms of returns, the fund has delivered a trailing return of 6.7% per year as of the same date. Additionally, over the past month, it has matched the Arbitrage Fund Index with a return of 0.6%. These metrics together highlight the fund’s strong position in the market.

Risk and Volatility

The Axis Arbitrage Fund Direct Growth is classified with a low-risk rating due to its arbitrage strategy.  

However, it’s crucial for investors to understand its risk metrics.

Here’s a quick look at its key risk metrics:

• Alpha: It shows how well the fund performs compared to its benchmark. 

A positive alpha means it’s doing better than expected.

• Beta: This measures how much the fund’s value changes compared to the benchmark. 

           A beta under 1 means it’s less volatile.

• Sharpe Ratio: It evaluates how well the fund returns for the risk taken. 

A higher Sharpe Ratio indicates better returns for the risk.

• Sortino Ratio: It shows the fund’s performance during times of negative returns, especially during market downturns. 
• Information Ratio: This ratio measures how consistently the fund outperforms its benchmark on a risk-adjusted basis. 

           A higher Information Ratio means the fund reliably delivers returns above the benchmark.

Taxation

Taxation for the Axis Arbitrage Fund, being an arbitrage mutual fund, follows specific rules. If the fund is equity-oriented, meaning it allocates more than 65% of its assets to equity instruments, the tax implications are as follows:

• Short-term capital gains (when the holding period is less than a year) will be taxed at 15%.
• Long-term capital gains (when the holding period is more than a year) will be taxed at 10% without the benefit of indexation.
• Gains up to ₹1 lakh, when held for more than 12 months, are exempt from taxation.

Investment Details

For those considering investing in the Axis Arbitrage Fund Direct Growth, the minimum investment for a lump sum is ₹ 500, and the Systematic Investment Plan (SIP) option is ₹100. The fund does not have a lock-in period, offering flexibility for investors.

Curious about your monthly investment needs? Find out with SIP Calculator!

How to Invest in Axis Mutual Funds

You can invest in Axis Arbitrage Fund effortlessly with Shoonya. Not only does Shoonya offer zero brokerage trading, but it also provides all the fund details you need before you start.

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, Axis Arbitrage Fund.
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. A payment link will be sent to 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.

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Setting Up an SIP for Mutual Funds

If you prefer a Systematic Investment Plan (SIP) for Axis Arbitrage Fund, follow these steps:

1. First, you neet 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, select Axis Arbitrage Fund – Direct Growth.
3. If this is your first SIP with Shoonya, you need to create a Mandate ID. Enter the Mandate amount and the validity date (until when 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).

This process will help you invest systematically with ease.

What is an Arbitrage Fund?

It is a type of mutual fund that aims to profit from price differences between the cash market and the futures market. These funds buy securities in one market and sell them in another where prices are higher. This strategy helps it make a profit from the price difference. Arbitrage funds are considered hybrid because they invest in both equity and debt.

Why Invest in Arbitrage Funds

• Low Risk: These funds are designed to minimise risk by aiming for stable, risk-free profits.
• Low Volatility: They generally experience less fluctuation, making them more stable.
• Competitive Returns: Arbitrage funds can offer returns that are on par with or better than low-risk debt funds, even before taxes.
• Flexible Investment Periods: They’re ideal for both short-term investments and those lasting over a year.
• Tax Efficiency: They take advantage of favourable equity taxation rules, which can be a big plus for investors.

How Does Arbitrage Fund Work?

Arbitrage funds work by taking advantage of price differences between the cash and futures markets.

1. The fund manager identifies securities with different prices in the cash and futures markets.
2. The fund purchases the security in the cash market and then resells it in the futures market at a higher value.
3. By locking in the price difference, the fund secures a profit regardless of market movements.
4. On the settlement date, the fund manager reverses the transactions, ensuring that the profit is realised.

Here’s a simple example to illustrate:

1. Simultaneous Transactions:

• Buy a stock at Rs. 200.
• Sell a 1-month futures contract of the same stock at Rs. 205.

2. Possible Outcomes:

A- If the Stock Price Rises:

• Stock Price: Rs. 210
• Gain on Stock: Rs. 10 (210 – 200)
• Loss on Futures: Rs. 5 (205 – 210)
• Net Profit: Rs. 5 (10 – 5)

B- If the Stock Price Remains the Same:

• Stock Price: Rs. 200
• Gain on Stock: Rs. 0 (200 – 200)
• Loss on Futures: Rs. 5 (205 – 200)
• Net Profit: Rs. 5 (0 – (-5))

C- If the Stock Price Falls:

• Stock Price: Rs. 190
• Loss on Stock: Rs. 10 (190 – 200)
• Gain on Futures: Rs. 15 (205 – 190)
• Net Profit: Rs. 5 (-10 + 15)

In each scenario, the goal is to lock in a profit by exploiting the price difference between the stock and its futures contract.

Benefits of Arbitrage Funds

They provide a smart, tax-efficient way to diversify your portfolio. 

What more?

You can also benefit from professional management.

Here are multiple reasons as to why you should invest in arbitrage funds:

1. Low Risk: Arbitrage funds are relatively low-risk investments. This is because they involve simultaneous buying and selling of securities, minimising exposure to market volatility.
2. Tax Efficiency: These funds are taxed like equity funds.
3. Consistent Returns: They can provide consistent returns even in volatile markets.
4. Liquidity: These offer better liquidity compared to fixed deposits and can be a good alternative to savings accounts.
5. Diversification: These invest in both equity and debt instruments, providing a balanced portfolio.

Things to Know Before Investing in Axis Arbitrage Fund

The fund performs better during periods of market volatility and sees more stable returns when the market is calm.

Here are a few things you must know:

• Possible Negative Returns: There might be instances where the fund experiences negative returns within a month due to market fluctuations or declines in its debt investments. However, the risk of negative returns is generally lower over a full F&O expiry cycle.
• Short-Term Investment: This fund is suitable for those looking to invest surplus funds for the short term.
• Investment Horizon: It is advisable to invest with a time frame of 3-6 months in mind.
• Investment Options: You have the flexibility to invest either through a lump sum or a systematic investment plan (SIP).
• No Lock-In Period: There is no lock-in period. However, you must be aware that exit loads may apply if you withdraw funds early.

Conclusion

The Axis Arbitrage Fund Direct Growth offers a suitable option for investors seeking to benefit from arbitrage opportunities. Its effective management, diversified approach, and favourable expense ratio make it an appealing choice for those interested in hybrid investments. 

FAQs| Axis Arbitrage Fund Direct Growth

Source: ValueResearch

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