What are arbitrage funds?
Arbitrage funds are a type of mutual funds that are attractive to investors who want to earn profit from uncertain markets without bearing too much risk. These funds work by exploiting the price differential between cash and futures markets. Rather than purchasing stocks and then selling them later after the price goes up.

Key benefits to investors:
Low Risk: The risk involved in these funds is very low as compared to other funds, because each security is bought and sold simultaneously, so there is virtually no risk involved with longer-term investments.
Taxed as Equity funds: Arbitrage funds are generally known as hybrid funds, which means they invest in both debt and equity instruments. But these funds primarily invest in equity funds and are therefore taxed as equity and hence have comparatively lower tax implications. Though the arbitrage funds have relatively lower risk associated, it has an unpredictable payoff and has high expense ratios.