Banking Mantra

Arbitrage vs Liquid Funds: Complete Guide to Key Differences

08 Oct 2026

Back to all Infographics


Arbitrage vs Liquid Funds: Understanding the Key Differences

What Are Liquid Funds?

These are short-duration debt funds that invest in debt and money market instruments, such as commercial papers, government securities like treasury bills, and certificates of deposit, all with maturity periods of 91 days or less.

These have no lock-in period or exit loads. These also have the highest liquidity among all mutual funds, as these can be redeemed within one business day.

VS

What Are Arbitrage Funds?

Arbitrage funds are hybrid funds that invest at least 65% of the corpus in equity and equity-related instruments. As the name suggests, these funds use the arbitrage strategy. They make the most of the price difference in cash and futures markets to buy and sell simultaneously.

For instance, if an asset is priced at ₹100 in one market segment, and at ₹110 in another market, the fund buys from the former market and sells in the latter, earning a profit of ₹10. Despite being classified as equity funds, they are extremely safe because they are fully hedged.

How They Compare?

Parameters Liquid Fund Arbitrage Fund
Category Debt Hybrid
Risk Very low; carries credit and interest rate risk No risk; 100% hedged
Return Low Moderate
Liquidity Very high. Can redeem in one business day T+1. High. Takes 2-3 business days for redemption.
Taxation Added to income and taxed at applicable slab rate 12.5% LTCG tax after one year

Now Access Mutual Funds Seamlessly In Bobworld

Login>Invest>Mutual funds

Read more

Popular Infographics

  • Disclaimer

    The contents of this article/infographic/picture/video are meant solely for information purposes and do not necessarily reflect the views of Bank of Baroda. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Bank of Baroda or its affiliates to any licensing or registration requirements. Bank of Baroda shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

Third-Party Property Damage in Motor Insurance

Home Insurance Claim Settlement Process Explained

Add this website to home screen

Are you Bank of Baroda Customer?

Yes No

Request Call Back

PM-Surya Ghar Yojana -Standalone

X
We use cookies (and similar tools) to enhance your experience on our website. To learn more on our cookie policy, Privacy Policy and Terms & Conditions please click here. By continuing to browse this website, you consent to our use of cookies and agree to the Privacy Policy and Terms & Conditions.