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

The stock market is filled with different gaps in prices, from which arbitrage opportunities arise and Nippon India Arbitrage Fund Direct Growth uses these opportunities to generate returns for the investors. While these gaps often seem insignificant to normal eyes, to fund managers and arbitrage traders as well, these gaps are huge opportunities. 

This article will help you navigate through the details of the Nippon 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

Nippon India Arbitrage Fund Direct-Growth is an open-ended hybrid fund that invests in different arbitrage opportunities in the debt and money market. It invests in the price difference between cash and derivative segments of debt securities and money market instruments. It also uses the arbitrage opportunities within the derivative segment of debt securities and money market instruments. 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 – 

1. Siddharth Deb: He is an MMS in finance with years of experience in financial services and asset management. He manages multiple funds at Nippon and to name a few Nippon India ETF Nifty 1D Rate Liquid BeEs, Nippon India ETF Hang Seng BeEs, and others are there. He has been managing this fund since 14 September 2024. 
2. Vikash Agarwal: He has also mangled the fund since 14 September 2024. He is a CA and a CFA and worked with HDFC AMC and L&T before joining Nippon India. 
3. Rohit Hashmukh Shah: He is a CA, FRM, and has ten years and above experience in equity dealing. He has been managing this fund since 8 April 2024. 

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How the Nippon India Arbitrage Fund Works?

Arbitrage 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 cash instrument and a derivative instrument is taken to generate profits. Similarly, arbitrage between two derivatives of the same underlying are also used. 

The fund manager needs to be on top of the market to find out such arbitrage opportunities and cash them immediately. In this Nippon 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 27 Dec 2024)

Nippon India Arbitrage Fund Direct-Growth has offered an annualized return of 7.10% since inception. It has been performing well consistently and here is a snapshot of its returns – 

10 Year Return: 6.68%

7 Year Return: 6.40%

5 Year Return: 6.10%

3 Year Return: 6.97%

1 Year Return: 8.21%

YTD Return: 8.14%

6 Month Return: 3.67%

3 Month Return: 1.93%

The Nippon India Arbitrage Fund has been consistently delivering higher returns when compared to the CCIL T Bill Liquidity Weight. The returns are almost double the CCIL T Bill, which indicates the resilience of the fund. The performance of the fund has remained consistent over the year and helps investors generate regular income. This fund is also offering one of the highest returns among the hybrid funds of this category. 

Investment Allocation (As of 30 Nov 2024)

The Nippon India Arbitrage Fund portfolio holds 73.95% cash and cash equivalents along with 26.46% of debt instruments, and equity is negative as of now, around -0.41%. 

Here is the investment allocation according to market capitalization – 

• Giant Cap: 55.74%
• Large Cap: 30.96%
• Mid Cap: 13.15%
• Small Cap: 0.15%

Investment allocation as per Ratings – 

• Cash Equivalents – 73.95%
• AAA – 23.78%
• SOV – 2.19%
• AA – 0.45%
• Unrated/ others – 0.04%

The top holdings of the Nippon India Arbitrage Fund include – 

Equity Segment 

• Reliance 
• Indusind Bank 
• Axis Bank
• Hindustan Aeronautical Ltd.
• HDFC Bank

Debt Segment 

• Nippon India Money Market Direct – Growth
• Nippon India Low Duration Direct – Growth
• Bank of Baroda CD 07/02/2025
• HDFC Securities Ltd. CP 90-D 18/12/2024
• Bank of Baroda CD 20/02/2025

Key Metrics 

As of 30 November 2024, the fund has an expense ratio of 0.39%, which is marginally higher than the category average of 0.34%.

Fund Details	Information
AUM (Assets Under Management)	₹ 15418 Crore as of 30 November 2024
NAV	₹ 27.6483 as of 27 December 2024
Category	Hybrid Fund
Fund Managers	Siddharth Deb. Vikash Agarwal Rohit Hashmukh Shah
Exit Load	0.25% for redemption within 30 days
Entry Load	Nil
Minimum Investment	₹5000(Lump sum)₹ 100 (SIP)
Benchmark	NIFTY 50 Arbitrage TRI

Risk of the Nippon 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 0.61% while the average standard deviation of the hybrid arbitrage funds is around 0.65%. This indicates that the Nippon India Arbitrage Fund is less volatile than its peers. However, when compared with CCIL T Bill Liquidity Weight, which has a standard deviation of around 0.41%, 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 1.23%, while that of the CCIL T-Bill is -5.10 and the category average is 0.86. This indicates that the Nippon India Arbitrage Fund is offering better risk-adjusted returns compared to its peers. 

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 lower downside risk compared to its peers. While the average for the category stands at 1.03%, this Nippon India Arbitrage Fund Direct-Growth has a 1.48% 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. 

Nippon India Arbitrage Fund is comparatively less volatile compared to its peers. This fund has a beta of 0.79% while that of the category is 0.81%. 

5. Alpha: It measures the extra return the fund gives above the market’s average return. The higher the alpha, the higher would be the return of the fund compared to the market average/ peers. 

The fund has an alpha of 2.40, marginally higher than the category average of 2.25. 

Taxation for Nippon India Arbitrage Fund 

If you’re investing in the Nippon 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. 

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 Nippon India Arbitrage Fund is ₹5000 for lump sum and SIP, it is ₹ 100. There is no lock-in period for the Nippon India Arbitrage Fund Direct – Growth.

Invest in the Nippon India Arbitrage Fund — SIP or lump sum? Invest with the MF app at your convenience. 

How to Invest in Nippon India Arbitrage Fund Direct?

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

Shoonya offers a free Demat account, zero commission investment, 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 Nippon 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 Nippon 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 Nippon 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 Nippon India Arbitrage Fund?

The lower risk profile of the fund makes it attractive for investors looking for stable returns. This fund can also help in diversifying your investment portfolio, and lower the risk of the entire portfolio. Then taxes are levied as of an equity fund, which helps the post-tax returns to be significantly higher when compared to other debt funds in general. 

Suitability of this Fund| Who Should Invest?

The Nippon India Arbitrage Fund Direct is suitable for investors who:

• Wants to invest for a shorter tenure such as from three months to one year
• Investors falling in the higher tax brackets
• Are risk-averse and looking for stable returns
• Want to make a profit out of market inefficiencies 
• 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, Nippon India Arbitrage Fund can bring down the risk profile of your investment portfolio by adding debt and cash instruments, which reap benefits from the arbitrage opportunities in them. This fund has been successfully offering higher than category average returns and way higher than the benchmarks. However, having said that the risk quotient is not negligible, thus if you want to invest in this fund, you need to consider that too. 

FAQs| Nippon India 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.