Tata Asset Management launches innovative fund scheme to mitigate volatility

Tata Asset Management on May 5 announced the launch of Tata Income Plus Arbitrage Active Fund of Fund, an innovative scheme aiming to blend the low-volatility strategy of arbitrage funds with the steady accrual potential of high-quality corporate bonds. The new fund offer (NFO) opened today and will close on May 19, 2025.

Investing in domestic mutual fund schemes, the fund of funds (FoF) offers a versatile solution to investors through a balanced mix of interest earned on corporate bonds and equity arbitrage returns, as per the release.

The key features of the Tata Income Plus Arbitrage Active FoF include a minimum investment amount of ₹5,000, equity taxation benefits after two years, and a modest exit load of 0.25% if redeemed within 30 days.

"In the current environment where debt yields are attractive and volatility in the equity market persists, a hybrid strategy like this can potentially offer superior post-tax returns compared to traditional debt funds," said Sailesh Jain, Fund Manager, Tata Asset Management. "The fund’s active allocation and smart liquidity management aim at optimising returns."

The Tata Income Plus Arbitrage Active FoF is designed for investors with a two-year horizon, seeking potentially stable, accrual-oriented and tax-efficient returns. The fund allocates maximum of 65% to Tata Corporate Bond Fund and minimum of 35% to Tata Arbitrage Fund, combining the stability of debt with tax efficient returns when a horizon of two years is considered.

The Tata Arbitrage Fund, with its 100% hedged equity portfolio, aims for short-term stable gains, while the Tata Corporate Bond fund focusses on accrual returns with selective duration management. This blend wrapped under a ‘fund of funds’ structure, offers a balanced approach with better tax efficiency than standalone arbitrage or corporate bond funds when held for over two years.

Arbitrage and hybrid strategies have gained traction in recent years as investors look for alternatives that combine the relative safety of debt with the tax efficiency and flexibility of equity-linked products.

The Tata Corporate Bond Fund – Regular Plan claimed to has given annualised returns of 8.43% over a one-year horizon, compared to 7.97% by CRISIL Corporate Bond A-II index in the same period. Since its inception in 2021, the fund has given returns of 5.96% (Source: Presentation).

Meanwhile, the Tata Arbitrage Fund – Direct Plan ranks third among arbitrage funds for both one-year and five-year SIP returns, according to Value Research. It has delivered an 8.05% return over a one-year SIP and 7.06% return over a five-year SIP.