Franklin India Arbitrage Fund – Mutual Fund Review
With rising interest in low-risk, tax-efficient mutual fund options, arbitrage funds are gaining attention from conservative investors and short-term savers alike. Launched in November 2024, the Franklin India Arbitrage Fund is one of the latest entries in this space by Franklin Templeton Mutual Fund, a name known for its legacy in fund management.
The fund seeks to deliver predictable, stable returns by exploiting market inefficiencies in the equity derivatives segment. In this blog, we provide a comprehensive review of the fund’s investment approach, performance since launch, portfolio strategy, and whether it’s suitable for your financial goals.
Fund Overview
Fund Name: Franklin India Arbitrage Fund
Type: Open-ended arbitrage fund (hybrid – equity-oriented)
Launch Date (NFO): November 4, 2024
Allotment Date: November 19, 2024
Benchmark: Nifty 50 Arbitrage Index
Minimum Investment: ₹5,000 (lump sum); ₹500 (SIP)
Exit Load: 0.25% if redeemed within 30 days
Fund Managers: Rajasa Kakulavarapu, Yogik Pitti, Pallab Roy, and Rohan Maru (debt component)
Investment Objective & Strategy
Franklin India Arbitrage Fund aims to generate returns by leveraging the price differential between spot and futures markets. It employs a hedged strategy that involves simultaneously buying a stock in the cash market and selling it in the futures market at a higher price, thereby locking in risk-free gains (called arbitrage profit).
The remaining portion of the portfolio is parked in short-term debt instruments and money market securities, which helps in liquidity and enhances overall yield.
The fund typically maintains:
65–70% in equity arbitrage positions (fully hedged)
30–35% in high-quality, low-duration debt instruments
Average maturity: Less than 1 year
Yield to Maturity (YTM): Approximately 6.2–6.4%
This ensures the fund carries minimal risk, and unlike pure equity funds, it is largely protected from market volatility.
Performance Since Launch (As of July 2025)
The fund has completed over 8 months since its launch and has shown steady but modest growth, which is expected from an arbitrage strategy.
NAV (Direct Plan – Growth): ₹10.46 (up from ₹10 at launch)
Absolute Return: ~4.6% (Nov 2024 to Jul 2025)
Annualized Return: ~6.5% (approximate, based on extrapolated growth)
Benchmark (Nifty 50 Arbitrage Index): ~5.2% during the same period
Despite being a new entrant, the Franklin India Arbitrage Fund has stayed competitive within its category. It has slightly underperformed the benchmark due to conservative positioning and transaction costs. However, its returns remain in line with other arbitrage funds in the market.
Portfolio Quality & Risk
The fund’s equity positions are fully hedged, meaning it does not take directional bets on market movements. It is not impacted by market volatility, making it a safe choice for conservative investors.
Key aspects of risk:
Low interest rate risk due to short-duration debt holdings
Low credit risk (mostly invests in high-rated instruments)
No equity market risk, since arbitrage positions are always hedged
Exit Load: Only if withdrawn within 30 days
The result is a low-risk, low-volatility profile, suitable for capital preservation with modest returns.
Tax Efficiency
One of the biggest benefits of this fund is its favorable tax treatment:
Classified as an equity fund for taxation
Short-Term Capital Gains (STCG): Taxed at 15% if sold before 12 months
Long-Term Capital Gains (LTCG): Taxed at 10% (only if gains exceed ₹1 lakh)
In contrast, traditional fixed deposits and debt funds are taxed at the individual’s income slab (which could be 20–30%). Hence, Franklin India Arbitrage Fund is more tax-efficient, especially for high-income individuals.
Pros of Franklin India Arbitrage Fund
Low-risk exposure, suitable for conservative investors
Stable returns, ideal for short to medium-term goals
Tax-efficient, better than most debt funds or FDs
Managed by experienced fund managers
Good alternative to liquid and ultra-short-term funds
Daily liquidity, with minimal exit load (only within 30 days)
Limitations
Limited return potential (typically 5.5%–6.5%)
Exit load applies on quick withdrawals
Returns may fluctuate slightly depending on arbitrage opportunities
Not suitable for those seeking capital appreciation or equity-like returns
Who Should Invest?
Ideal for:
Investors looking for short-term investment (3–12 months)
Those wanting a better alternative to fixed deposits
Conservative savers seeking tax-efficient returns
Parking funds for near-term goals or emergencies
Not ideal for:
Aggressive investors aiming for double-digit returns
Traders or ultra-short-term investors (<30 days)
Long-term investors focused on equity growth
Final Thoughts
The Franklin India Arbitrage Fund is a solid choice for risk-averse investors who want predictable returns with tax advantages. It offers a dependable parking spot for idle funds, without exposing you to the risks of the equity market. While it may not excite aggressive investors, it serves a crucial role in asset allocation and short-term financial planning.
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