Income plus arbitrage funds see Rs 2,000 crore outflow in 2026

Investors pulled out around Rs 2,000 crore from income plus arbitrage funds in the first seven months of 2026, reversing last year's inflows of nearly Rs 21,000 crore, according to MFI360 Explorer. The category, launched in 2024, now has 22 schemes, with major houses like HDFC Mutual Fund and Sundaram Mutual Fund entering this year.

These funds combine debt investments with arbitrage strategies and qualify for equity-like taxation by allocating at least 35% to arbitrage funds, making them attractive for investors in higher tax brackets. Average returns over the year to 11 August stood at 5.7%, lagging money market funds (6.22%) and arbitrage funds (5.73%), but ahead of short-duration debt funds (5.33%) and corporate debt funds (5.43%), Value Research data shows.

Financial experts say the funds suit investors in the 25% or higher tax bracket with a two-to-three-year horizon. The two largest schemes are Kotak Income Plus Arbitrage Omni Fund (Rs 7,900 crore) and ICICI Prudential Income Plus Arbitrage Omni Fund (Rs 3,200 crore), both mainly holding AAA-rated debt.