SBI Income Plus Arbitrage Active Fund of Fund: A Smart Blend of Stability and Tax-Efficient Returns
In today’s uncertain financial markets, investors—especially the conservative ones—are constantly on the lookout for low-risk investment avenues that offer consistent returns while maintaining tax efficiency. If that sounds like you, then there’s a new offering in the mutual fund space that deserves your attention: the SBI Income Plus Arbitrage Active Fund of Fund.
Launched by SBI Mutual Fund, India’s largest asset management company, this newly introduced scheme aims to bridge the gap between low volatility and steady returns—making it a suitable choice for individual investors, corporate treasuries, and high-net-worth individuals (HNIs).
Let’s explore everything you need to know about this hybrid fund offering in detail—from its structure and portfolio strategy to its benefits, risks, and who it’s most suitable for.
📌 Quick Snapshot of the NFO
- Fund Name: SBI Income Plus Arbitrage Active Fund of Fund (FoF)
- NFO Period: April 23, 2025 to April 30, 2025
- Allotment Date: May 2, 2025
- Fund Type: Open-ended Fund of Fund Scheme
- Minimum Investment: ₹5,000 and in multiples of ₹1 thereafter
- Additional Investment: ₹1,000 and in multiples of ₹1 thereafter
- SIP Options: Daily, Weekly, Monthly, Quarterly, Semi-Annual, Annual
- Fund Manager: Mr. Ardhendu Bhattachary
Understanding the Fund’s Objective
The core aim of the SBI Income Plus Arbitrage Active FoF is to generate stable, market-neutral, and tax-efficient returns. It does so by dynamically allocating assets between:
- Actively managed debt mutual funds (50–65%)
- Actively managed arbitrage mutual funds (35–50%)
- Cash and money market instruments (up to 5%)
This structure allows the fund to capitalize on interest income from debt markets, and price inefficiencies in equity markets through arbitrage, while keeping risk at a minimal level.
🏗️ How Does a Fund of Fund (FoF) Work?
A Fund of Fund is a mutual fund that doesn’t invest directly in stocks or bonds, but instead allocates capital into a basket of other mutual funds. This indirect investing structure brings diversification, professional management, and flexibility to the table.
In this case, SBI’s fund will primarily invest in existing SBI mutual fund schemes, but also has the option to consider mutual funds from other AMCs, depending on their suitability.
⚖️ Portfolio Allocation Strategy
Here’s a closer look at the allocation philosophy behind this hybrid structure:
1. Debt Mutual Funds (50–65%)
These are funds that primarily invest in fixed-income instruments such as government securities, corporate bonds, treasury bills, etc.
📈 Goal: To provide stability and predictable returns over time.
🔒 Risk Level: Low to moderate.
2. Arbitrage Mutual Funds (35–50%)
These funds exploit the price differences between equity spot and derivative markets. For instance, buying a stock in the cash market and simultaneously selling it in the futures market.
📈 Goal: To generate returns through low-risk trading strategies.
🔒 Risk Level: Very low since positions are hedged.
3. Cash or Money Market Instruments (Up to 5%)
Includes liquid assets like cash, reverse repos, triparty repos, and other short-term money market instruments.
📈 Goal: To maintain fund liquidity and meet redemption requirements.
🔒 Risk Level: Negligible.
📊 Benchmarking the Fund’s Performance
The fund uses a composite benchmark to track its performance:
- 65% Nifty Composite Debt Index
- 35% Nifty 50 Arbitrage Index
This dual-index benchmark reflects the fund’s hybrid strategy and offers investors a way to measure its efficiency against the performance of its underlying assets.
📈 Who Should Consider Investing in This Fund?
This fund is ideal for investors who want a middle-ground between traditional fixed deposits and equity funds. It suits:
- ✅ Conservative Investors: Looking for capital preservation and better-than-FD returns.
- ✅ HNIs: Seeking stable, post-tax income from a diversified pool of funds.
- ✅ Corporate Treasuries: Needing a parking solution for surplus cash with minimal market risk.
- ✅ Medium-Term Investors: With a 2–3 year time horizon and moderate return expectations.
🎯 Key Benefits of the SBI Income Plus Arbitrage Active FoF
1. Tax Efficiency
Thanks to its arbitrage component, the fund enjoys equity-like tax treatment if the equity allocation crosses 65% (in certain strategies). This leads to lower capital gains tax compared to pure debt funds.
2. Risk-Adjusted Returns
By combining arbitrage and debt, the fund targets market-neutral growth—offering protection during volatility and down cycles.
3. Professional Management
Managed by experienced fund manager Ardhendu Bhattacharya, who handles several SBI schemes, including conservative hybrid and retirement plans.
4. Low Minimum Investment
Start investing with just ₹5,000, making it accessible to retail investors, salaried professionals, and first-time mutual fund investors.
5. Flexible SIP Options
You can choose from daily to annual SIPs, which gives flexibility in investing based on your cash flow patterns.
🧮 How Does Arbitrage Work in Mutual Funds?
Here’s a quick example:
Suppose Reliance stock is trading at ₹2,500 in the cash market and ₹2,520 in the futures market. An arbitrage fund would:
- Buy Reliance in the cash market at ₹2,500
- Sell Reliance in the futures market at ₹2,520
The ₹20 difference is your risk-free profit (minus expenses and taxes), realized when both positions are squared off.
In volatile or sideways markets, arbitrage funds tend to perform relatively better due to increased mispricing opportunities.
🛡️ Risks to Consider
Although low-risk, this fund is not risk-free. Investors must consider:
- Interest Rate Risk: Debt fund components may be affected by fluctuating interest rates.
- Arbitrage Spread Compression: When the difference between spot and future prices narrows, arbitrage returns may reduce.
- Market Liquidity Risk: If underlying funds face redemption pressure, it may affect overall liquidity.
- No Guaranteed Returns: As per SEBI norms, mutual funds can’t guarantee returns.
🧾 Taxation Insights
Depending on its underlying asset allocation, the fund may qualify as:
- Debt-Oriented FoF: Taxed as per debt fund rules — LTCG after 3 years @ 20% with indexation.
- Equity-Oriented Fund (in some strategies): If equity exposure is maintained above 65%, LTCG up to ₹1 lakh is tax-free, and 10% thereafter.
Always consult a tax advisor before investing for personalized advice.
📉 How Is This Fund Different from Other Hybrid Funds?
| Feature | SBI Income Plus Arbitrage FoF | Conservative Hybrid Funds | Balanced Advantage Funds |
| Equity Exposure | Mostly through arbitrage | Up to 25% | Dynamic (0–100%) |
| Risk Level | Very Low | Low to Moderate | Moderate |
| Return Expectation | 5–7% | 6–9% | 8–10% |
| Volatility | Low | Moderate | High |
| Tax Treatment | Tax-efficient (if equity-weighted) | Debt | Equity (if 65%+) |
🗣️ Expert Commentary
“In today’s market environment, stability and tax-efficiency matter. The SBI Income Plus Arbitrage Fund of Fund aims to allocate investments between debt-oriented and arbitrage mutual fund schemes, depending on market conditions, to provide a combination of stability from debt and market-neutral returns from arbitrage.”
— D P Singh, Deputy MD & Joint CEO, SBI Funds Management Ltd.
✅ Final Thoughts
The SBI Income Plus Arbitrage Active Fund of Fund stands out as a timely and relevant product for investors looking for:
- Better alternatives to traditional savings or FDs
- A systematic, tax-efficient income stream
- A diversified portfolio with professional oversight
With a low entry point, flexible investment modes, and a strategy built for low volatility, this fund ticks many boxes for the cautious investor.
📣 Act Fast!
The NFO closes on April 30, 2025, and allotment will be done on May 2, 2025.
If you’re someone who believes in smart investing without sleepless nights, this could be your next step in building a safe and sustainable portfolio.
🔖 Don’t forget to share this article with friends or colleagues who are looking for smart, low-risk investment options!
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