- At a Glance - Top 3 Arbitrage Funds by AUM
- Fund by Fund
- Conclusion
Arbitrage funds exploit a simple inefficiency in markets: the same stock often trades at slightly different prices in the cash and futures markets. The fund buys the stock in the cash segment and simultaneously sells it in the futures segment, locking in that price gap as profit. There are no directional bets. No market timing. Just mechanical, repetitive arbitrage trades, hundreds of them, running continuously.
Because of this structure, returns don't depend on whether the market goes up or down. They depend on how active the futures market is and how wide those price spreads are. This makes arbitrage funds one of the least volatile categories among mutual funds, with standard deviations hovering around 0.4%-0.8%, compared with 14–18% for a typical large-cap equity fund.
In this blog, we compare three popular schemes in this category: Kotak Arbitrage Fund, SBI Arbitrage Opportunities Fund, and ICICI Prudential Equity Arbitrage Fund
At a Glance - Top 3 Arbitrage Funds by AUM
| Parameter | Kotak Arbitrage | SBI Arbitrage Opp. | ICICI Pru. Equity Arbitrage |
| AUM (₹ Cr) | ₹71,265 Cr | ₹44,393 Cr | ₹32,989 Cr |
| Fund Manager(s) | Hiten Shah | Ardhendu Bhattacharya, Neeraj Kumar | Nikhil Kabra, Darshil Dedhia, Ajay Kumar Solanki, Archana Nair |
| 1-Year Return | 6.88% | 6.90% | 6.80% |
| 3-Year Return | 7.80% | 7.70% | 7.60% |
| 5-Year Return | 6.77% | 6.70% | 6.60% |
| Std. Deviation | 0.59% | 0.59% | 0.70% |
| Expense Ratio (Direct) | 0.40% | 0.40% | 0.44% |
| Exit Load | 0.25% (<30 days) | 0.25% (<30 days) | 0.25% (<30 days) |
| Top Holdings | ICICI Bank Ltd (2.9%), HDFC Bank (6.9%), Reliance (2.7%) | HDFC Bank (5.97%), ICICI Bank (4.08%) | HDFC Bank (5.33%), Vodafone Idea (3.19%) |
Fund by Fund
Kotak Arbitrage Fund - The Category Giant
At ₹71,265 Cr in AUM, Kotak Arbitrage Fund is the largest arbitrage fund in India, by a significant distance. Managed by Hiten Shah, the fund has compounded at 7.80% over three years and 6.77% over five years. It's a long enough track record to feel confident about consistency.
The portfolio leans heavily on financial services, with HDFC Bank as the top equity arbitrage pair and a large allocation to Kotak's own money market fund for the debt sleeve. This internal money market allocation accounts for over 11% of the portfolio, a common practice among large AMCs. The standard deviation sits at 0.59%, which tells you the ride has been very smooth.
Given the sheer size, the fund team needs to find sufficient arbitrage opportunities in highly liquid stocks. That's why you see names like Reliance and HDFC Bank dominating; deep futures volumes ensure tight execution.
SBI Arbitrage Opportunities Fund - The PSU Stamp
SBI MF's offering, AUM of ₹44,393 Cr, is managed by Ardhendu Bhattacharya and Neeraj Kumar.
Returns sit at 6.90% over one year and 7.70% over three years, fractionally ahead of the ICICI fund and a shade behind Kotak.
The 0.59% 5-year standard deviation is the lowest in comparison to industry standards, reflecting a conservative approach by the fund manager. For an investor who already uses SBI as their primary bank and prefers a single-AMC relationship, this fund is a natural fit.
ICICI Prudential Equity Arbitrage Fund - The Veteran
The ICICI Prudential Money Market Fund comprises 15.45% of the portfolio, making it the most debt-heavy of the three. Returns of 6.80% over one year and 7.60% over three years are marginally lower but still firmly in line with the category. The 0.85% standard deviation is the highest here, though the difference from the other two is barely perceptible in real-money terms.
ICICI Pru also holds Vodafone Idea in its arbitrage pairs, offering slightly different sector exposure versus the pure financial services tilt at Kotak and SBI.
Conclusion
Based on the data, Kotak Arbitrage Fund emerges as the best overall option due to its strong combination of the highest AUM, better medium- to long-term returns, low volatility, and competitive expense ratio. SBI Arbitrage Opportunities Fund is a close second, offering similar risk and cost metrics with marginally better short-term performance, but slightly lagging over longer periods. ICICI Prudential Equity Arbitrage Fund ranks third, as it delivers comparatively lower returns along with higher volatility and costs, making it less efficient in a category where consistency and cost play a key role.
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