A year in one line
Over the twelve months to Friday 27 March 2026, the median arbitrage fund returned 6.90%. The median liquid fund returned 6.27%.
An arbitrage fund buys shares and sells the same shares in the futures market at a slightly higher price, then collects the difference as the two prices meet. It carries little market risk and earns something close to a short-term interest rate, but because it holds equity it is taxed as an equity fund. That is why it is so often weighed against a liquid fund.
All figures are computed from daily NAVs, Direct plan, Growth option. The arbitrage figures are as of 27 March for all 38 funds. The liquid figures use the NAV of 27 March for 36 of the 42 funds and 26 March for the rest. The one-year comparison counts funds at least a year old: 32 arbitrage funds and 37 liquid funds.
Period by period
| To 27 March 2026 | Arbitrage (median) | Liquid (median) |
|---|---|---|
| 1 month (absolute) | 0.54% | 0.41% |
| 3 months (absolute) | 1.73% | 1.46% |
| 6 months (absolute) | 3.34% | 2.94% |
| 1 year | 6.90% | 6.27% |
| 3 years, a year (CAGR) | 7.68% | 6.97% |
| 5 years, a year (CAGR) | 6.58% | 5.99% |
| Volatility, 3 years | 0.88% | 0.16% |
| Worst fall from a peak, 3 years | −0.24% | −0.02% |
On every window the arbitrage median is ahead, by 0.63 points over the year and by about 0.6 to 0.7 points a year over three and five. 31 of the 32 arbitrage funds with a full year beat the liquid median.
The price is a bumpier NAV. Volatility is more than five times a liquid fund's, though at 0.88% a year it is still small.
Did March's volatility help?
March was a nervous month for equities. India VIX, the market's gauge of expected volatility, averaged 21.79 over March's trading days to the 27th, against 12.91 in February. That is its highest monthly average since May 2022.
Arbitrage returns depend on the gap between the share price and the futures price, and that gap tends to widen when markets are unsettled. So a reasonable guess was that March would be a good month for these funds. The NAVs don't show it.
| Month ending | Days | Arbitrage, absolute | Liquid, absolute | Arbitrage, scaled to a year | Liquid, scaled to a year |
|---|---|---|---|---|---|
| 31 Dec 2025 | 31 | 0.62% | 0.50% | 7.5% | 6.0% |
| 30 Jan 2026 | 31 | 0.69% | 0.48% | 8.4% | 5.8% |
| 27 Feb 2026 | 31 | 0.69% | 0.55% | 8.4% | 6.7% |
| 27 Mar 2026 | 28 | 0.54% | 0.41% | 7.3% | 5.5% |
The one-month figures are absolute, and the windows are not the same length, so the last two columns scale each to a 365-day year by compounding. On that footing the median arbitrage fund earned about 7.3% a year in the month to 27 March, down from about 8.4% in each of the two months before. Liquid funds slowed too, to about 5.5%. Because these are medians rounded to two decimals, each scaled figure is good to roughly a tenth of a point.
What March did change is the spread between funds. The best and weakest one-month returns were 0.37% and 0.68%, a 0.31-point gap, against 0.22 points in February. And the NAVs were a little rougher: across five of the oldest arbitrage funds (Kotak, ICICI Prudential, SBI, HDFC and Nippon India), about 31% of fund-days in March were down days, against 26% in February.
The spread within arbitrage
| Arbitrage fund | 1 year | 3 years, a year |
|---|---|---|
| Motilal Oswal Arbitrage | 7.57% | |
| ITI Arbitrage | 7.31% | 7.75% |
| Franklin India Arbitrage | 7.26% | |
| quant Arbitrage | 7.23% | |
| Bank of India Arbitrage | 6.45% | 7.08% |
| Mahindra Manulife Arbitrage | 6.32% | 6.61% |
| Samco Arbitrage | 5.41% |
Three of the top four are too young for a three-year figure. Among funds with three years of history, ITI's 7.31% is the best one-year return. Franklin India Arbitrage is the only fund in the category whose NAV on 27 March stood below its earlier peak, by 0.06%.
The category spans 2.16 points over the year, against 0.55 points for liquid funds. Its middle half, though, runs from 6.70% to 7.03%: most arbitrage funds bunch nearly as tightly as liquid ones.
The tax difference, briefly
- Liquid fund: gains on units bought on or after 1 April 2023 are taxed at your slab rate, whatever the holding period.
- Arbitrage fund: taxed as an equity fund. Gains on units held under a year are taxed at 20%. Over a year, gains above ₹1.25 lakh in a financial year are taxed at 12.5%.
For someone in a high slab, that matters more than the 0.63-point gap in the table. The capital gains tax calculator works through a specific case.
What this does not tell you
One month is noise. A month's return in a fund like this depends partly on where its futures positions sit in their cycle. March's slower pace may say nothing about April.
Past returns don't predict. Arbitrage spreads change with market conditions, and there have been long stretches when these funds trailed liquid funds.
The NAV can dip. It is small, but an arbitrage fund's value can be lower this week than last.
Where to go from here
The arbitrage fund page lists every scheme, and the cash-parking arbitrage screen ranks them. The guide to arbitrage funds explains how the trade works.
For the liquid side, see liquid fund returns to early March. For the volatility itself, see the India VIX spike in March.
Frequently asked questions
What have arbitrage funds returned over the last year?
Over the year to the NAV of 27 March 2026, the median Direct Growth arbitrage fund returned 6.90%, across 32 funds at least a year old. The range ran from 5.41% to 7.57%, and 31 of the 32 beat the median liquid fund's 6.27% over the same year.
Did the volatile market in March 2026 help arbitrage funds?
Not in the NAVs to 27 March. India VIX averaged 21.79 in March, its highest monthly average since May 2022, but the median arbitrage fund's one-month return was 0.54%, about 7.3% a year when scaled up, down from about 8.4% in each of January and February.
Are arbitrage funds riskier than liquid funds?
They move more, though not much. Over three years to 27 March 2026 the median arbitrage fund's annualised volatility was 0.88% against 0.16% for liquid funds, and its worst fall from a peak was 0.24% against 0.02%.
This is commentary on published data, not investment advice. WealthTicker is not a SEBI-registered adviser or distributor. Figures are as of the dates stated and can be revised by their source.
Keep reading
Arbitrage funds vs liquid funds: the 2026 scorecard
The median arbitrage fund returned 6.68% in the year to 30 September 2026, against 6.46% for liquid funds. Where each came out ahead, and what it cost.
Balanced advantage funds in 2026's falling market
The Nifty 50 fell 13.4% from 31 December 2025 to 30 September 2026. The median balanced advantage fund lost 1.7%, and its worst dip was 8.7%.
Gilt funds returned 3% in a year, half what liquid did
The median gilt fund returned 3.02% in the year to 30 September 2026, against 6.46% for liquid funds. The spread between gilt funds was over 7 points.