Kotak Arbitrage Fund delivered a 3.1% return over the last six months, leading its category. However, long-term data shows the fund has trailed its benchmark over one and three-year periods, highlighting the importance of evaluating mutual funds across different timelines.
What Happened
Kotak Arbitrage Fund has secured the top position among peers for six-month returns as of July 2, 2026, recording a gain of 3.1%. The fund, which manages assets worth Rs 72,079.2 crore, outperformed other large arbitrage funds like the HSBC Arbitrage Fund and ICICI Prudential Arbitrage Fund, both of which posted 3.0% returns during the same six-month window. This performance data accounts for funds with assets under management (AUM) exceeding Rs 1,500 crore.
The Long-Term Performance View
While short-term gains are notable, a look at longer time horizons tells a different story. Over a one-year period, the fund trailed its benchmark by 1.2 percentage points, with the benchmark delivering 7.2%. A similar trend appears in the three-year data, where the fund lagged its benchmark by 0.5 percentage points, even as the benchmark returned 7.6%. This variation suggests that while the fund may capture short-term opportunities effectively, it has struggled to consistently match its benchmark over extended periods.
Why Performance Varies in Arbitrage Funds
Arbitrage funds aim to profit from price differences between the cash and derivatives markets. Their returns are closely linked to market volatility and the spread between these two segments. Because these spreads change frequently based on market conditions, the leadership in performance tables often shifts. For instance, while Kotak Arbitrage Fund led in one-month and six-month returns, it was surpassed by the HDFC Arbitrage Fund over a three-month horizon, where HDFC posted a 1.5% return.
What Investors Should Track
Investors using arbitrage funds often look for stability and tax efficiency rather than high-growth returns. The key for investors is to move beyond short-term ranking tables and observe the consistency of returns against the benchmark. Monitorables include the fund's expense ratio, which can significantly impact net returns in low-yield categories, and the consistency of the fund manager in capturing arbitrage spreads over 3-to-5-year periods. Regularly reviewing the fund's performance against its specific benchmark remains more useful than relying on performance leads over short periods like one or six months.