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Tata Arbitrage Fund and ICICI Prudential Among the Arbitrage Funds That Temporarily Shuttered Because of Coronavirus

Market Volatility Forces Arbitrage Funds to Temporarily Close

Reports of arbitrage funds temporarily shuttering in the wake of the impact of the novel coronavirus (COVID-19) on the markets has caused concern for investors. 

At Shepherd Smith Edwards and Kantas (SSEK Law Firm), our investment fraud lawyers are offering free case assessments to help you determine whether you have grounds for an investor claim. We understand the difficulties that US citizens are facing in the wake of COVID-19 and want to assure that we are here to help during this time. 

What Are Arbitrage Funds?

This type of fund, which provides debt-like returns, for tax purposes tends to be treated as equity funds. They usually generate revenue by selling their futures while holding stocks. The gap between those two elements, known as the spread, creates the returns. They are a popular investment vehicle for high net worth individual investors.

However, market volatility caused by COVID-19 recently forced a couple of funds to temporarily close. There was Tata Mutual Fund, which said that it was closing its arbitrage fund to new inflows on March 19th to protect investors. That said, that arbitrage fund reopened a week later on March 26th  to new subscriptions along with the statement that it expected to benefit from cash anomalies between futures and cash markets. Another fund, the ICICI Prudential Mutual Fund, also said it would not be open to new inflows from March 21st to 31st. 

Mutual Fund Distributors Warn New Arbitrage Fund Investors Away

In the meantime, mutual fund distributors cautioned investors, especially those considering these types of funds for the first time, to stay away for the next month. 

Viral Bhatt, a Mumbai based mutual fund distributor who is quoted on a recent LiveMint article warned that returns of other types of funds that use arbitrage, including Equity Savings and Balanced Advantage, could also see an effect on returns.

While these funds have the benefit of typically being low risk, there are downsides. Among these is that their profitability is unreliable even when the markets are stable. They also have a high expense ratio because so many trades have to happen for an arbitrage fund to be successful. 

File An Investor Claim With SSEK Broker Fraud Lawyers

If you suffered investment losses in arbitrage funds and you are wondering whether your stockbroker unsuitably recommended them to you or if they failed to apprise you of the risks, you may have grounds for filing a broker fraud claim. SSEK Law Firm remains hard at work meeting virtually with investors all over the US.

Contact us today to learn more about whether you have grounds for a case. Our broker fraud lawyers offer a free case consultation and will help you to determine the best way to recover your losses.

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