NFO Review: BNP Paribas Enhanced Arbitrage Fund

BNP Paribas AMC has launched a new open-ended equity (arbitrage) mutual fund scheme called BNP Paribas Enhanced Arbitrage Fund. The scheme will invest 0-10 per cent of the total corpus in unhedged equity. Equities, equity related instruments and derivatives, including index futures, stock futures, index options, stock options, etc. as partly hedged / arbitrage exposure will constitute 65-90 per cent of the total corpus.

Karthikraj Lakshmanan, Senior Fund Manager (Equity) and Mayank Prakash, Fund Manager, Debt, will manage the fund. The NFO of the scheme is currently open for subscription and it will close on December 22. The scheme will re-open for ongoing purchase and redemption within five business days from the date of allotment.

“It can be called as a market-neutral fund as we would be hedging equity long positions with nifty future short positions,” says Karthikraj Lakshmanan. He also says that the fund is more of hybrid in nature with a range of 10-35 per cent in debt instruments. According to him, the scheme is slightly riskier than a pure arbitrage fund but less risky than equity-oriented hybrid scheme. “The ideal horizon for an investor in this scheme should be between 12 months to 18 months,” adds Lakshmanan.


Should you invest?
“Arbitrage funds gain on the opportunities of different prices in various markets. It is like buying something from one market and selling it in a different market at a higher price,” says Deepali Thorat, a certified financial planner based in Mumbai. “Currently, markets are volatile and it is a very good time to invest in an arbitrage fund,” adds Thorat.

However, she favours an established arbitrage fund to an NFO to invest. Also, the equity unhedged portion queers the pitch. “The scheme has an extra portion of unhedged equity which might help you to earn extra returns, but will also increase the risk,” says Thorat. There are a few schemes like Kotak Equity Savings and HDFC Equity Savings already available in the market with an exposure to unhedged equity.

If you are looking for a pure arbitrage fund with a very little risk and predictable returns, this fund may not work for you. As said before, unhedged equity part has the potential to offer superior returns. But it can also be a drag during bad phases in the market.