PLUTUS ARBITRAGE PLUS

December 2019

Investment Objective:

Generate a post-tax post expense return of ~ 3% p.a. over Arbitrage Funds

Overview
  • This strategy aims to improve the returns over arbitrage funds for investors.
  • Arbitrage Funds are an alternative to Liquid Funds as short-term investments. Their returns are more tax efficient than liquid funds since returns from arbitrage Funds are taxed as returns from equity. They do not carry any open positions and are much less volatile than equity investments.
  • Arbitrage Plus uses a proprietary derivative strategy that entails selling puts and calls with Nifty being the underlying to generate Alpha.



Advantages
  • Generate Alpha for the client over the returns from Arbitrage Funds
  • Risk is mitigated and capped at 4% of the amount invested
  • Underlying investments are liquid and can be redeemed at short notice
Inception Date:

1st Jan 2019

Minimum Investment:

5 Cr.

Benchmark:

Crisil Liquid Index

Fees:

0.75% pa

Exit Option:

While the investor can exit on a daily basis, we suggest investors to stay invested for at least one-month.

Process

The investor needs to hold/purchase Arbitrage Funds in Demat form. The units will be held in the dividend reinvestment option. The units would be used as margin to run the Plutus Alpha strategy.

November 2019 Performance
Arbitrage Funds* Plutus Alpha Total Fund Returns Crisil Liquid Returns
0.35% 0.59% 0.94% 0.46%

*Average of Edelweiss Arbitrage, IDFC Arbitrage, UTI Arbitrage, Reliance Arbitrage Fund returns ** The above returns are pre-tax

November commentary

The roll spread (annualized) on the arbitrage funds is approximately 5.1%. Average arbitrage spreads have remained subdued throughout the expiry week and have fallen from 5.4% last month to 5.1% this month on the back of aggressive short rolls by the Arbitrage participants. The key factor contributing to the contraction of arbitrage spreads has been rate cuts expectation and the lower debt yields.

Our strategy of selling options had a good month in November. We took our option positions on November 13, 2019. The total income collected was ₹ 64.11 Lacs against a margin of ₹ 100 Crs worth of securities. During the month, we got an opportunity to close our put positions on November 21, which we exercised. On November 28, we also closed our call position and booked income of ₹ 58.58 Lacs for the month.

Process Logo

Arbitrage Plus Strategy Vs Crisil Liquid Fund Index (Month on Month comparision)

plutus arbitrage plus
Performance Comparison (30th November 2019)
Fund Jan 19 Feb 19 Mar 19 Apr 19 May 19 June 19 July 19 Aug 19 Sept 19 Oct 19 Nov 19
Plutus Arbitrage Plus 1.16% 1.22% 0.99% 1.09% 0.79% 0.53% 0.71% 1.20% 0.83% 0.90% 0.94%
Crisil Liquid Index 0.63% 0.53% 0.56% 0.56% 0.68% 0.55% 0.59% 0.49% 0.51% 0.51% 0.46%
Arbitrage Funds* 0.55% 0.40% 0.56% 0.69% 0.79% 0.25% 0.73% 0.49% 0.31% 0.66% 0.35%

*Average of Edelweiss Arbitrage, IDFC Arbitrage, UTI Arbitrage, Reliance Arbitrage Fund returns. The above returns are gross of fees and taxes. Past performance is not indicative of future performance