By Alex V 
Two of India’s leading asset management companies, ICICI Prudential Mutual Fund and Union Mutual Fund, have launched new arbitrage mutual fund schemes this week, signaling increased investor interest in low-volatility equity investment products. The twin launches reflect a broader industry trend toward “quality arbitrage” solutions, designed to deliver stable returns with reduced risk, particularly in the prevailing volatile stock market environment.
Rising Arbitrage Fund Popularity Fuels New Offerings
Arbitrage funds have gained notable traction among Indian investors, especially in times of market uncertainty. These hybrid schemes exploit price differences between equity cash and derivatives segments, seeking to generate relatively steady returns that often rival those of traditional debt funds while retaining certain tax advantages of equity funds.
Both ICICI Prudential Mutual Fund and Union Mutual Fund are capitalizing on this momentum with the rollout of their latest arbitrage-focused offerings. ICICI Prudential’s new scheme, ‘ICICI Prudential Quality Arbitrage Fund,’ opened for subscription on May 21, targeting investors seeking regular income with lower-than-equity volatility. Similarly, Union Mutual Fund unveiled its ‘Union Quality Arbitrage Fund,’ emphasizing transparent investment processes and risk-managed strategies.
What is Driving Arbitrage Fund Demand?
Arbitrage funds have become a preferred vehicle for conservative investors amid rising equity market volatility, interest rate uncertainty, and recent regulatory shifts impacting fixed income products. According to the Association of Mutual Funds in India (AMFI), assets under management (AUM) in arbitrage schemes crossed ₹1.5 lakh crore ($18 billion) in April 2025, marking a 12% year-on-year increase.
“With interest rates seesawing and debt fund taxation revised last year, arbitrage funds have become an anchor for risk-averse investors,” said Aditya Sharma, mutual funds analyst at ET Money. “We’re seeing a new wave of launches that promise quality underlying assets and stronger risk frameworks.”
Key Features of the New Schemes
ICICI Prudential Quality Arbitrage Fund
Investment Objective: To generate income by investing predominantly in arbitrage opportunities in the equity and derivatives markets, along with debt and money market instruments.
Opening Date: May 21, 2025 (New Fund Offer period until June 4, 2025)
Minimum Investment: ₹5,000
Fund Manager Quote:
“The fund focuses on high-quality arbitrage opportunities to deliver competitive, tax-efficient returns with low risk. Our active management approach seeks to safeguard capital in unpredictable markets,” said Sankaran Naren, Chief Investment Officer, ICICI Prudential AMC.
Union Quality Arbitrage Fund
Investment Rationale: Leverages a robust research process to identify secure arbitrage trades, while maintaining liquidity and capital preservation.
Opening Date: May 20, 2025 (New Fund Offer until June 3, 2025)
Minimum Investment: ₹1,000
Fund Manager Perspective:
“By prioritizing quality equities and a disciplined arbitrage mechanism, we aim to create a product ideal for short-term parking of funds without significant downside risks,” explained Vinay Paharia, CIO, Union Mutual Fund.
Industry Perspectives and Market Outlook
Market experts note that arbitrage schemes may offer comparatively steady returns, but their performance depends on prevalent market volatility and liquidity in cash-futures spreads. The current high derivatives volumes in Indian bourses are conducive to sustained arbitrage opportunities.
“Investors should temper expectations—arbitrage funds will not provide double-digit equity-like returns, but they are attractive for capital preservation and tax efficiency,” said Kavita Krishnan, head of research at Morningstar India. She also cautioned, “The returns can compress when the market goes through prolonged calm or reduced volatility.”
Should Investors Consider These New Quality Arbitrage Funds?
Financial planners suggest that arbitrage funds are particularly well-suited for conservative investors with a short- to medium-term time horizon. They are often used as alternatives to liquid or ultra-short-term debt funds, given their equity status for taxation after one year of holding.
According to a 2025 ICICI Prudential investor survey, nearly 38% of respondents expressed interest in arbitrage-driven products due to their risk-adjusted returns and tax profile.
However, experts recommend reviewing product suitability, expense ratios, past fund management track record (for other schemes), and prevailing market conditions before investing.
Sources Used
Association of Mutual Funds in India (AMFI) data releases
Quotes from mutual fund house press releases and management
ET Money and Morningstar India — market commentary
ICICI Prudential Mutual Fund, Union Mutual Fund official websites
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