HDFC Arbitrage Fund

HDFC Mutual has come out with its new offering called HDFC Arbitrage Fund. It is an open end equity fund whose objective is to generate income by investing predominantly in arbitrage opportunities between cash and derivative market and arbitrage opportunities within the derivative segment and by deployment of surplus cash in debt securities and money market instruments.

These arbitrage funds typically tend to give returns that are similar to liquid mutual funds but there is no gaurantee of the same. They are just trying to make money by arbitraging between derivatives and the cash market in case of any knee jerk fluctuaitons or market imbalances that happens many times or technical issues causing these imbalances.

Asset allocation under normal circumstances:
Equity and equity related instruments: 65-90 per cent
Derivatives: 65-90 per cent
Debt securities and money market instruments: 10-35 per cent

Asset allocation under defensive circumstances (When adequate arbitrage opportunities are not available in the derivative and equity markets)
Equity and equity-related instruments: upto 65 per cent
Derivatives: upto 65 per cent
Debt securities and money market instruments: 35-100 per cent

Snapshot
Face value: Rs 10
Offer opens: September 28, 2007
Offer closes: October 15, 2007
Type: Open-ended equity
Plans: Retail and Wholesale
Options: Growth, Dividend Monthly and Dividend Quarterly

Minimum application amount:
Retail Plan
Growth and Quarterly Dividend Option : Rs 5,000
Quarterly Dividend Plan : Rs. 25000

Wholesale Plan
All the options: : Rs 1 crore

Entry load: Nil
Exit load: The fund would charge an exit load of 0.50% if the units are redeemed or switched out within 3 months from the date of allotment.

Benchmark index: Crisil Liquid Fund Index

The performance delivered by funds in similar peer group rage between 8% and 9% p.a. based on their past performances:

Other funds in this caregory are Benchmark Derivative, ICICI Pru Equity & Der. Income Opt (Inst & Retail), ICICI Pru Monthly Interval Plan I, ICICI Prudential Blended, JM Arbitrage Advantage, JM Equity & Derivative, Kotak Equity Arbitrage, Lotus India Arbitrage, SBI Arbitrage Opportunities, Standard Chartered Arbitrage and UTI Spread