Zerodha Fund House has launched an arbitrage fund, with the minimum investment set at ₹5,000. The new scheme, called Zerodha Arbitrage Fund, opened for subscription on August 12, 2026, and will close on August 14, 2026.
An arbitrage fund works differently from a regular equity fund. It attempts to benefit from price differences for the same security in the cash and derivatives markets, rather than betting on whether a stock will go up or down. That difference is why arbitrage funds are often discussed alongside fixed deposits and liquid funds as options for short-term money.
This article explains Zerodha Arbitrage Fund, its NFO details, how arbitrage funds work, taxation, risks, and who should consider investing in it.
Zerodha Arbitrage Fund: Key NFO Details
| Fund Detail | Details |
| Fund | Zerodha Arbitrage Fund |
| Fund house | Zerodha Fund House |
| Fund category | Hybrid – Arbitrage Fund (open-ended) |
| NFO opening date | August 12, 2026 |
| NFO closing date | August 14, 2026 |
| Minimum investment | ₹5,000 (lump sum), and any amount thereafter |
| Minimum SIP | ₹1,000 |
| Benchmark | Nifty 50 Arbitrage Index TRI |
| Fund manager | Kedarnath Mirajkar |
| Exit load | 0.25% if redeemed within 30 days of allotment; nil after 30 days |
| Riskometer | Low |
| Continuous sale and repurchase | Reopens within 5 business days of unit allotment |
Note: Only information confirmed by the fund house has been included above. The scheme’s expense ratio has not been disclosed publicly at the time of writing. These figures reflect the scheme documents available at the time of publication; it’s worth cross-checking the minimum investment, exit load, and allocation limits against the latest KIM/SID on Zerodha Fund House’s own page before you invest.
What Is an Arbitrage Fund?
An arbitrage fund tries to earn from price differences between the cash and futures markets.
The same stock can sometimes trade at slightly different prices in these two markets at the same time. An arbitrage fund typically buys the stock in the cash market and simultaneously sells an equal quantity in the futures market.
Because the fund holds opposite positions in the two markets, it isn’t betting on which way the stock will move. If the price goes up, the loss on the futures position is offset by the gain on the cash position, and vice versa. The strategy aims to earn from the price difference rather than taking a direct bet on whether the stock market will rise or fall.
Here’s an illustration, not a promise of returns: if a stock trades at ₹1,000 in the cash market and its futures contract trades at ₹1,020, an arbitrage fund may try to capture that ₹20 difference. In practice, the actual gain is smaller once brokerage, taxes,s and other costs are factored in, and such a gap may not always exist.
How Does the Zerodha Arbitrage Fund Work?
According to the scheme’s structure, the fund can invest across two broad settings depending on market conditions.
In a normal environment, where enough arbitrage opportunities are available, the fund can put 65% to 100% of its assets into equity and equity-related instruments, including derivatives. The remaining 0% to 35% goes into debt, money market instruments, cash, cash equivalents or units of other mutual funds.
If suitable arbitrage opportunities are not available, the scheme can increase its allocation to debt and money-market instruments within the limits specified in the scheme documents, up to 35% to 100% in debt and money-market instruments, with equity exposure falling to as low as 0% to 65%.
The debt portion may include treasury bills, commercial paper, certificates of deposit, TREPS, repo instruments, government securities, bonds, and short-term deposits.
Why Would Someone Invest in an Arbitrage Fund?
Investors typically look at this category for a few reasons: short-term parking of money, generally for periods ranging from a few months to a couple of years; lower dependence on stock market direction compared with a regular equity fund, since positions are largely hedged; an alternative for investors comparing options against fixed deposits or liquid funds; and equity-oriented taxation, if the fund maintains the required equity exposure under current tax rules.
Arbitrage funds are generally considered lower-risk than pure equity funds, but they are not risk-free. Returns depend on market conditions and are not guaranteed.
Zerodha Arbitrage Fund vs FD vs Liquid Fund
| Feature | Arbitrage Fund | Fixed Deposit | Liquid Fund |
| Return | Market-linked, depends on available arbitrage spreads | Pre-decided rate, fixed at booking | Market-linked, based on short-term debt yields |
| Capital guarantee | No | Subject to the applicable bank/issuer framework | No |
| Liquidity | Generally high on an open-ended scheme, subject to exit load in the first 30 days | Depends on the FD’s premature withdrawal terms | Generally high |
| Taxation | Equity-oriented, if the fund meets the required conditions | Interest taxed at the investor’s income slab rate | Taxed at the investor’s income slab rate |
| Risk | Low to moderate, depending on market conditions | Relatively low for bank FDs | Relatively low, but not risk-free |
All three can be used for different short-term needs, but they differ in how returns are generated, how much certainty they offer, and how they are taxed.
Taxation
Arbitrage funds are taxed as equity-oriented mutual funds, provided the scheme maintains the required minimum equity exposure. This is a key reason investors compare them with FDs and debt funds, where gains are added to income and taxed at the investor’s slab rate.
Under the current rules, effective for transfers made on or after July 23, 2024:
- Short-term capital gains (STCG): If units are sold within 12 months of purchase, gains are taxed at 20% under Section 111A.
- Long-term capital gains (LTCG): If units are held for more than 12 months, gains are taxed at 12.5% under Section 112A, on gains above ₹1.25 lakh in a financial year. This ₹1.25 lakh annual exemption threshold is a combined limit across all your equity shares and equity-oriented mutual funds, not a separate limit for this fund alone.
Health and education cess applies on top of these rates, and a surcharge may apply depending on income level. These are the rules in force as of the publication of this article; tax rules can change in future budgets, so it’s worth checking the applicable rate at the time you actually redeem.
What Are the Risks?
Arbitrage funds are not free of risk, even though they’re often described as low-risk. Some things worth understanding before investing:
- Availability of opportunities: Arbitrage spreads shrink when too much money chases the same trade, or when markets are calm. In such periods, the fund may earn less.
- Return variability: Unlike an FD, there’s no fixed rate. Returns can vary month to month.
- Transaction costs: Frequent buying and selling in cash and futures markets involves brokerage and other costs that eat into the spread.
- Derivatives-related risk: The strategy depends on the futures and cash positions moving together as expected; execution delays or mismatches can affect returns.
- Liquidity risk: In stressed market conditions, the cost of unwinding positions can rise.
- Tax-rule risk: If capital gains tax rules for equity-oriented funds change in the future, that would affect post-tax returns from this category.
- Scheme-specific risks: The Scheme Information Document (SID) carries additional risk factors specific to this fund; it’s worth going through before investing.
Who Should Consider This Fund?
This category may suit investors who understand that returns are market-linked and not fixed, want relatively lower volatility than a pure equity fund while still benefiting from equity-oriented taxation, have a short- to medium-term investment horizon and understand how arbitrage funds generate returns, and are comfortable with how mutual funds work, including NAV movement and exit loads.
It may not be the right fit for investors looking for long-term wealth creation through direct equity market participation, those who need a guaranteed, fixed return, or anyone not comfortable with products where the return isn’t known in advance.
What Does the ₹5,000 Minimum Investment Mean?
The NFO’s minimum investment is ₹5,000. That’s the entry point, not a recommendation on how much to put in.
The right amount depends on things specific to you: your financial goals, how soon you’ll need the money, what else you already hold in your portfolio, and how much liquidity you need to keep aside. A ₹5,000 minimum simply makes the fund accessible; it says nothing about whether ₹5,000, ₹50,000, or a larger sum is the appropriate amount for your situation.
Should You Invest in the Zerodha Arbitrage Fund?
Before investing, check the fund’s investment objective, its stated strategy, costs including the expense ratio once disclosed, the exit load structure, the tax treatment based on your holding period, and whether your own investment horizon actually matches what an arbitrage fund is built for.
A new fund does not automatically become a better investment simply because it comes from a well-known brand. The fund’s strategy, costs, and suitability for your situation matter more than who launched it.
Since this is a new fund, it has no long-term performance history of its own. Any comparison with other arbitrage funds in the market is a comparison of category behaviour, not of this specific scheme’s track record.
Final Verdict
Zerodha Fund House has launched the Zerodha Arbitrage Fund, with a minimum investment of ₹5,000 and an NFO window from August 12 to August 14, 2026. The fund uses an arbitrage strategy, buying in the cash market and selling in futures rather than taking a directional bet on stocks, which is what sets it apart from a regular equity fund. It may appeal to investors with short- to medium-term money who want relatively lower volatility along with equity-oriented taxation.
It is not risk-free, and returns will depend on how many arbitrage opportunities the market throws up over time. Before investing, it’s worth going through the strategy, costs, exit load, taxation, and your own investment horizon, rather than investing simply because the fund carries a familiar name.
FAQs
What is the Zerodha Arbitrage Fund?
An open-ended hybrid scheme from Zerodha Fund House that follows an arbitrage strategy, aiming to profit from price differences between a stock's cash and futures market prices.
What is the minimum investment in Zerodha Arbitrage Fund?
₹5,000 for a lump-sum investment during the NFO, and ₹1,000 for SIP.
When is the Zerodha Arbitrage Fund NFO open?
The NFO opened on August 12, 2026, and closes on August 14, 2026.
Are arbitrage funds safe?
No, arbitrage funds are not risk-free. They're generally considered lower-risk than pure equity funds, but returns can still vary and aren't guaranteed.
How are arbitrage funds taxed?
As equity-oriented funds. Gains within 12 months are taxed at 20% (STCG), and gains beyond 12 months are taxed at 12.5% above ₹1.25 lakh a year (LTCG), under current rules effective from July 23, 2024.
ARN Disclosure: Investik Future is an AMFI-registered Mutual Fund Distributor. ARN-341107 — Verify on AMFI ↗. Himani Soni is the content author and digital marketer; the ARN registration belongs to Investik Future, not to the author personally.
