MAHINDRA MANULIFE ARBITRAGE YOJANA
MAHINDRA MANULIFE ARBITRAGE YOJANA
MAHINDRA MANULIFE ARBITRAGE YOJANA
What’s Inside?
• What is Arbitrage
• How Does Arbitrage Strategy Hedge Risk
• Introduction to Arbitrage Funds
• Why Mahindra Manulife Arbitrage Yojana
• Arbitrage Market Overview
MAHINDRA MANULIFE ARBITRAGE YOJANA
What is Arbitrage?
MAHINDRA MANULIFE ARBITRAGE YOJANA
Arbitrage:
Exchange Arbitrage
Cash & Carry
Arbitrage
Basket of Stock
Arbitrage
Corporate Action Driven
Arbitrage
A strategy that takes advantage of Price Difference of an asset in various scenarios
1 2 3 4
MAHINDRA MANULIFE ARBITRAGE YOJANA
1. Exchange Arbitrage
Buy in Exchange A
• Rs 150
Sell in Exchange B
• Rs 152
Profit
• Rs 2
At times a stock is available at different prices in two exchanges
This is an easy arbitrage and is usually pre-set for fast executions
This is for illustration purposes only and to explain the concept of various arbitrage strategies
MAHINDRA MANULIFE ARBITRAGE YOJANA
2. Cash & Carry Arbitrage
A stock is traded either at premium or discount in futures market vis-à-vis the spot
market.
The futures contracts are exercised near the end of month when the market is usually
active on the securities. The spread between the spot and futures market converges near
the expiry of the contract. This is the most commonly used strategy by Arbitrage Funds.
BUY STOCK OF
COMPANY A IN
SPOT MARKET
AT
RS 1000
SELL
CONTRACT OF
COMPANY A IN
FUTURES
MARKET AT
RS 1010
LOCK IN A
PROFIT
OF
RS 10
This is for illustration purposes only and to explain
the concept of various arbitrage strategies
MAHINDRA MANULIFE ARBITRAGE YOJANA
A Detailed look at the Cash & Carry Arbitrage Strategy
Fresh-Up
Taking a fresh position
Buy in Spot/Cash and Sell August Future
Rollover
Rolling over near to expiry of the contract
Stay put in Spot/Cash. Buy August future, Sell September future
Unwind
Reversing the transaction
Buy October Futures, Sell Spot/Cash
August
August Spot/Cash: 100
August Future: 102
Spread: 2
September
September Spot/Cash : 101
September Future: 103
Spread: 2
October
October Spot/Cash : 103
October Future: 101
Spread: 2
This is for illustration purposes only and to explain the concept of various arbitrage strategies
MAHINDRA MANULIFE ARBITRAGE YOJANA
3. Basket of Stocks Arbitrage
Buy a basket of stocks in the same proportion as in an Index and sell futures
contract of the same Index
Buy in basket of stocks with same weightage as
in the Index X
• Rs 7800
Sell Index X Future
• Rs 8000
Profit
• Rs 200
This is for illustration purposes only and to explain the concept of various arbitrage strategies
MAHINDRA MANULIFE ARBITRAGE YOJANA
4. Corporate Action Driven Arbitrage
A stock may be available at a premium/ discount due to corporate actions such as:
MERGERS
AND
ACQUISITIONS
RIGHTS
ISSUE
BUY BACK
ARBITRAGE
Although, these situations are not a daily occurrence, but with adequate market knowledge and
timing, available opportunities maybe captured efficiently.
MAHINDRA MANULIFE ARBITRAGE YOJANA
How Does Arbitrage Strategy Hedge Risk?
MAHINDRA MANULIFE ARBITRAGE YOJANA
Arbitrage Strategy Hedges Risks Completely
Buy Stock @ Rs 1000 &Sell Futures @ Rs 1080
When Stock Price
MOVES UPTo Rs 1020
When Stock PriceREMAINS STEADY
At Rs 1000
When Stock PriceGOES DOWN
To Rs 900
Profit in Cash Market (Rs) 20 0 -100
Profit in Futures Market (Rs) 60 80 180
Overall Profit (Rs) 80 80 80
RETURNS ARE LOCKED-INThis is for illustration purposes only and to explain
the concept of various arbitrage strategies
MAHINDRA MANULIFE ARBITRAGE YOJANA
Arbitrage Funds
MAHINDRA MANULIFE ARBITRAGE YOJANA
Introduction to Arbitrage Funds
A hybrid scheme with
minimum 65% investment in
equity and equity related
securities
Suitable for investors
looking for relatively lower risk
investments for short term
Suitable for investors looking to
benefit from tax
efficiencies
MAHINDRA MANULIFE ARBITRAGE YOJANA
A fully hedged portfolio that is managed actively to find suitable opportunities
Features of Arbitrage Funds
Better post tax returns compared to short term debt funds, such as liquid funds
Suitable for investment across market cycles, as it doesn’t take a directional call
Lower risk, by locking in returns through simultaneous opposite trades
Please consult your tax advisor before taking any investment decision
MAHINDRA MANULIFE ARBITRAGE YOJANA
Manages the VolatilityComparison with Debt and Equity Indices
Low Volatility compared to Equity Schemes as represented by spot market benchmark index Nifty 50 TRI
5000
10000
15000
20000
25000
30000
01-Apr-10 01-Apr-11 01-Apr-12 01-Apr-13 01-Apr-14 01-Apr-15 01-Apr-16 01-Apr-17 01-Apr-18 01-Apr-19 01-Apr-20
Nifty 50 Arbitrage Index Nifty 50 TRI GD CRISIL LF**
The above graph shows the movement of Rs 10000 invested in the indices on 1 April 2010 Data period - 1 April 2010 – 30 June 2020. Data Source: MFI. The data provided
above is for illustrative purpose only and should not be construed as a promise on minimum returns and safeguard of capital. Mahindra Manulife Investment Management
Private Limited (Formerly known as Mahindra Asset Management Company Private Limited)/Mahindra Manulife Mutual Fund is not guaranteeing or forecasting any returns.
Past performance may or may not be sustained in future.
CRISIL Liquid Fund Index
MAHINDRA MANULIFE ARBITRAGE YOJANA
Manages the VolatilityRolling Return Analysis of Benchmark Indices
Nifty 50 Arbitrage Index Crisil Liquid Fund Index NIFTY 50 TRI Index
Date 6 Months 1 Year 2 Years 6 Months 1 Year 2 Years 6 Months 1 Year 2 Years
Minimum 2.47 4.02 4.97 2.77 3.10 6.00 -55.06 -27.65 -1.93
Maximum 9.64 9.49 8.55 10.50 10.18 8.92 56.19 79.87 27.34
Average 6.60 6.81 6.93 7.38 7.48 7.53 9.24 12.41 10.76
Std Deviation 1.74 1.52 1.29 1.46 1.50 0.99 19.69 17.83 5.86
Liquid Fund is represented by Crisil Liquid Fund Index, Arbitrage Fund is represented by Nifty 50 Arbitrage Index and Equity Funds is represented by Nifty 50 TRI
Index.
Returns for the period less than 1 year are Simple Annualized and greater than 1 year are Compounded Annualized Growth Returns (CAGR) rolled monthly for the
study period 1 April 2010 – 29 June 2020| Data Source: MFI. The data provided above is for illustrative purpose only and should not be construed as a promise on
minimum returns and safeguard of capital. Mahindra Manulife Investment Management Private Limited (Formerly known as Mahindra Asset Management Company
Private Limited)/Mahindra Manulife Mutual Fund is not guaranteeing or forecasting any returns. Past performance may or may not be sustained in future.
Return Profile is very close to that of Liquid Funds
MAHINDRA MANULIFE ARBITRAGE YOJANA
Protection from Downside Risk Through Complete HedgingThrough a study, summarized below, we have observed that historically there has been no case of negative returns for
the periods specified below.
Nifty 50 Arbitrage Index
Particulars 6 Months 1 Year 2 Years
Minimum 2.47 4.02 4.97
Maximum 9.64 9.49 8.55
Average 6.60 6.81 6.93
Median 6.65 6.64 7.31
Std Deviation 1.74 1.52 1.29
Returns for the period less than 1 year are Simple Annualized and greater than 1 year are Compounded Annualized Growth Returns (CAGR) rolled monthly for the study
period 1 April 2010 – 29 June 2020| Data Source: MFI. The data provided above is for illustrative purpose only and should not be construed as a promise on minimum returns
and safeguard of capital. Mahindra Manulife Investment Management Private Limited (Formerly known as Mahindra Asset Management Company Private Limited)/Mahindra
Manulife Mutual Fund is not guaranteeing or forecasting any returns. Past performance may or may not be sustained in future.
Rs 10,330If invested for 6
months
Rs 10,681 If invested for 1 year
Rs 11,434 If invested for 2 years
So, in absolute terms based on average returns, Rs 10,000 would become:
MAHINDRA MANULIFE ARBITRAGE YOJANA
Short Term vs Long Term InvestmentsCategory Returns^ of Liquid and Arbitrage Funds
Po
st Ta
x R
etu
rns (
%)
4.59 4.64 4.73 4.88
5.79 5.85 5.89
4.89 5.035.54 5.67 5.81 5.93
6.21
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
3 Months 6 Months 1 Year 2 Years 3 Years 4 Years 5 Years
Liquid Fund Category Arbitrage Fund Category
^The category returns provided above are average of monthly rolling returns (calculated for specified periods) for Regular Plan – Growth Option of Arbitrage and Liquid category
mutual fund schemes in existence during the relevant periods. Returns for the less than 1 year period are simple annualized and greater than 1 year period are Compounded
Annualized Growth Returns (CAGR). Data Period: 1 April 2010 – 24 July 2020 | Data source: MFI | The data provided above is for illustrative purpose only and should not be
construed as a promise on minimum returns and safeguard of capital. The returns shown above are post tax returns calculated for individual investors falling in income bracket of
Rs 50 lakh – 1 Cr. In view of individual nature of the tax consequences, the investors are advised to consult their professional tax advisors. Mahindra Manulife Investment
Management Private Limited (Formerly known as Mahindra Asset Management Company Private Limited)/Mahindra Manulife Mutual Fund is not guaranteeing or forecasting any
returns. Past performance may or may not be sustained in future.
An overview of how the category has performed over the years for various investment horizon
MAHINDRA MANULIFE ARBITRAGE YOJANA
Tax Efficiency –Individuals
Liquid Fund(Crisil Liquid Fund
Index)
Arbitrage Fund(Nifty 50 Arbitrage Index)
Invested Amount (Rs) 10000 10000
1 Year Return (%) 7.48% 6.81%
1 Year Return (Rs) 748 681
Effective Tax Rate^ (%)34.32%
(STCG Tax)
11.44%(LTCG Tax)
Tax on Returns (Rs) 256.71 77.91
Returns Post Taxation (Rs) 491.29 603.09
Net Amount (Rs) 10491.29 10603.09
Net Returns (%) 4.91% 6.03%
Return (%) assumed is basis index average returns as per slide 17. ^ Including CESS and surcharge
Data period 1 April 2010 – 29 June 2020| Data
Source: MFI. The data provided above is for
illustrative purpose only with prevailing Income
Tax Laws and Finance Act, 2020 and should not
be construed as a promise on minimum returns
and safeguard of capital. STCG Tax rates
@30% assuming Individual is in Tax bracket 50
Lakh and 1 Cr and LTCG tax @10% on gains
exceeding Rs. 100,000 in a financial year,
provided STT has been paid on transfer of units.
In case STT is not paid, tax @20% with
indexation benefit would apply. In view of
individual nature of the tax consequences, the
investor is advised to consult his/her own
professional tax advisor. Mahindra Manulife
Investment Management Private Limited
(Formerly known as Mahindra Asset
Management Company Private
Limited)/Mahindra Manulife Mutual Fund is not
guaranteeing or forecasting any returns. Past
performance may or may not be sustained in
future.
MAHINDRA MANULIFE ARBITRAGE YOJANA
Tax Efficiency – Domestic Corporates
Liquid Fund(Crisil Liquid Fund
Index)
Arbitrage Fund(Nifty 50 Arbitrage Index)
Invested Amount (Rs) 10000 10000
1 Year Return (%) 7.48% 6.81%
1 Year Return (Rs) 748 681
Effective Tax Rate^ (%)33.38%
(STCG Tax)
11.13%
(LTCG Tax)
Tax on Returns (Rs) 249.71 75.78
Returns Post Taxation (Rs) 498.29 605.22
Net Amount (Rs) 10498.29 10605.22
Net Returns (%) 4.98% 6.05%
Return (%) assumed is basis index average returns as per slide 17. ^ Including CESS and surcharge
Data period 1 April 2010 – 29 June 2020| Data
Source: MFI. The data provided above is for
illustrative purpose only with prevailing Income
Tax Laws and Finance Act, 2020 and should not
be construed as a promise on minimum returns
and safeguard of capital. The information
provided herein is for select category of investors
as stated here. The rates are applicable for the
financial year 2020-21 and are effective from
April 1, 2020. STCG Tax rates @30% assuming
domestic corporate is in Tax bracket 1cr-10 cr
and LTCG tax @10% on gains exceeding Rs.
100,000 in a financial year, provided STT has
been paid on transfer of units. In case STT is not
paid, tax @20% with indexation benefit would
apply. In view of individual nature of the tax
consequences, the investor is advised to consult
his/her own professional tax advisor. Mahindra
Manulife Investment Management Private Limited
(Formerly known as Mahindra Asset
Management Company Private
Limited)/Mahindra Manulife Mutual Fund is not
guaranteeing or forecasting any returns. Past
performance may or may not be sustained in
future.
MAHINDRA MANULIFE ARBITRAGE YOJANA
Why Mahinda Manulife Arbitrage Yojana?
MAHINDRA MANULIFE ARBITRAGE YOJANA
Mahindra Manulife Arbitrage Yojana
Reasons to Invest
Relatively lower risk as arbitrage strategy focuses on protecting downside
risk by capturing market spreads
One of the least volatile hybrid schemes that is suitable for investment
across market cycles3
Better tax efficiency on returns compared to short term debt funds2
1
Please consult your tax advisor before taking any investment decision
MAHINDRA MANULIFE ARBITRAGE YOJANA
Investment Strategy
Would invest in arbitrage position between Cash & Futures trading on exchanges
It can even invest in basket of stocks and short the corresponding futures against it
Derive returns from the implied cost of carry between the underlying and the derivatives market.
When the arbitrage spreads are low, scheme may investment in high quality debt papers for income generation
MAHINDRA MANULIFE ARBITRAGE YOJANA
Arbitrage Market Overview
MAHINDRA MANULIFE ARBITRAGE YOJANA
Arbitrage Market Overview
0
50
100
150
200
250
300
350
400
450
500
Number of Contracts (in Crores)
Index Futures No. of contracts Stock Futures No. of contracts
Index Options No. of contracts Stock Options No. of contracts
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Turnover in Rs Bn
Index Futures Turnover ( bn) Stock Futures Turnover ( bn.)
Index Options Premium Turnover** ( bn) Stock Options Premium Turnover** ( bn)
Source: NSE Data as on May 30, 2020
Participation/ activity in the market over years have seen a rise
MAHINDRA MANULIFE ARBITRAGE YOJANA
Arbitrage Market Overview Total Turnover CY 2020 (in Rs bn) in Derivatives Market has been higher than that of Cash Market
Source: NSE, Data as on May 30, 2020
MAHINDRA MANULIFE ARBITRAGE YOJANA
MAHINDRA MANULIFE ARBITRAGE YOJANA
Scheme Details
MAHINDRA MANULIFE ARBITRAGE YOJANA
Scheme DetailsInstruments Indicative Allocation (% of assets) Risk Profile
Normal
Circumstances
Defensive
Circumstances#
High/Medium/Low
Equity & Equity related instruments
including Equity Derivatives*65-100 0-65 Medium to High
Debt and Money Market Securities (including
TREPS (Tri-Party Repo), Reverse Repo)
0-35 35-100 Low to Medium
Units issued by REITs & InvITs 0-10 0-10 Medium to High
Exit Load:
- An exit load of 0.25% is payable if Units are redeemed / switched-out on or before completion of 30 days from the
date of allotment of Units;
- Nil - If Units are redeemed / switched-out after completion of 30 days from the date of allotment of Units.
Redemption /Switch-Out of Units would be done on First in First out Basis (FIFO).
Benchmark: Nifty 50 Arbitrage Index TRI
*The Scheme will use derivatives (including index futures, stock futures, index options and stock options) as part of the arbitrage strategy of the Scheme and
subject to guidelines issued by SEBI from time to time.
# If the arbitrage opportunities in the market are not available / negligible or returns are lower than alternative investment opportunities as per the allocation
pattern, then the Fund Manager may choose to follow an alternate asset allocation, keeping in view the interest of the unitholders. For Detailed Asset Allocation refer SID available online at www.mahindramanulife.com or visit nearest ISC
MAHINDRA MANULIFE ARBITRAGE YOJANA
• Regular
• Direct (D)Available Plans for subscription
by investors
• Growth (D)
• DividendAvailable Option under each plan
• Dividend Payout
• Dividend Reinvestment (D)Available Facilities under
Dividend option
(D) - Default
Minimum Application/
Additional Purchase Amount
Minimum Switch-in Amount Minimum Redemption/ Switch-
out Amount
Rs. 1,000/- and in multiples
of Re. 1/- thereafter
Rs. 1,000/- and in multiples
of Re. 0.01/- thereafter
Rs. 1,000/- or 100 units or
account balance, whichever
is lower
Scheme Details
MAHINDRA MANULIFE ARBITRAGE YOJANA
Fund Managers
Mr. Rahul Pal is a Chartered Accountant. Prior to joining
Mahindra Manulife Investment Management Private Limited
[Formerly known as Mahindra Asset Management Company
Private Limited], he was associated with Taurus Asset
Management Company Limited as ‘Head – Fixed Income’. He
has also worked with Sundaram Asset Management Company
Limited as ‘Fund Manager – Fixed Income’. In these roles, he
was responsible for managing and overseeing the Fixed
Income Portfolios.
Mr. Srinivasan Ramamurthy is a Fund Manager with Mahindra
Manulife Investment Management Private Limited [Formerly known
as Mahindra Asset Management Company Private Limited]. Prior to
joining us, he was with IDBI Federal Life Insurance managing the
equity funds for the company. He has handled varied roles within the
investment function including fund management, research and
investment strategy. He has over 13 years experience in the field of
equities equally split between buy side and sell side. His previous
stints also include financial sector equity research at IIFL Capital &
Credit Suisse. He has also been a strategy consultant with KPMG
advising clients on the financial services space prior to his foray into
investment field. He is an engineer by qualification from Jadavpur
University and has done his MBA from IIM - Calcutta.
Srinivasan Ramamurthy
Fund Manager – Equity
Rahul Pal
Head – Fixed Income
MAHINDRA MANULIFE ARBITRAGE YOJANA
This product is suitable for Investors who are seeking*:
• Income over short term
• Income through arbitrage opportunities between cash and derivative market and arbitrage opportunities within the derivative segment.
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understand that their principal will be at moderately low risk
Cno.00775
MAHINDRA MANULIFE ARBITRAGE YOJANA
Disclaimer
The views expressed here in this presentation are for general information and reading purpose only and do not constitute any guidelines andrecommendations on any course of action to be followed by the reader / user of this presentation. No representation or warranty is made asto the accuracy, completeness or fairness of the information and opinions contained herein. The views are not meant to serve as aprofessional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrumentor mutual fund units for the reader / user. This presentation has been prepared on the basis of publicly available information, internallydeveloped data and other sources believed to be reliable. While utmost care has been exercised while preparing this presentation, MahindraManulife Investment Management Private Limited [Formerly known as Mahindra Asset Management Company Private Limited] (MMIMPL)does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use ofthis information. The data/statistics, wherever provided, are given to explain general market trends in the securities market, it should not beconstrued as any research report/research recommendation. Readers / users of this presentation should rely on information / data arising outof their own investigations and are advised to seek independent professional advice and arrive at an informed decision before making anyinvestments. Neither Mahindra Manulife Mutual Fund, MMIMPL nor Mahindra Manulife Trustee Private Limited (Formerly known as MahindraTrustee Company Private Limited), its directors or associates shall be liable for any damages that may arise from the use of the informationcontained herein.
For detailed asset allocation, investment strategy, scheme specific risk factors and more details, please read the SchemeInformation Document and Key Information Memorandum of Mahindra Manulife Arbitrage Yojana available at the ISCs of MMIMPLand Computer Age Management Services Private Limited and are also available on www.mahindramanulife.com. Past performancemay or may not be sustained in the future and should not be used as a basis for comparison with other investments.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY