How income plus arbitrage funds are emerging as a debt alternative, explains Valtrust’s Arihant Bardia

Amid heightened volatility in equity markets over the past year, high-net-worth investors (HNIs) are diversifying into alternative asset classes that promise stability and tax efficiency. According to Arihant Bardia, Chief Investment Officer and Founder of Valtrust, the past 12 months have seen renewed interest in commodities and multi-asset funds, with strong traction in Income Plus Arbitrage Funds and higher-yield credit alternatives.

Bardia said that investors are moving toward low-correlation strategies offering predictable post-tax returns without taking on duration or equity risk.

“The broader trend is a move toward stability, tax efficiency and low correlation within portfolios,” he noted.

Explaining the structure of the Income Plus Arbitrage Fund of Fund, Bardia described it as a preferred alternative to debt mutual funds among HNIs.

The fund blends arbitrage strategies—designed to be market-neutral—with a high-quality debt portfolio, aiming to deliver stable, low-volatility returns.

One of the key attractions of this fund is its taxation benefit.

“When held for over two years, gains are treated as long-term capital gains at 12.5%, compared to debt funds taxed at the investor’s slab rate,” Bardia said.

This differential, he added, makes such funds more tax-efficient while providing daily liquidity and minimal credit or duration risk.

The segment has also benefited from profit-booking trends in precious metal ETFs. “Investors booking profits in gold and silver ETFs are reallocating to Arbitrage FoFs for steady yield and tax efficiency,” Bardia observed.

However, he added that long-term interest in gold and silver remains structurally strong, supported by global central bank buying and diversification away from US Treasuries.

For taxation, these funds qualify as long-term capital gains if held for more than two years and are taxed at 12.5%. Otherwise, they are taxed at the investor’s slab rate.

According to Bardia, HNIs and family offices are using them for treasury management, interim deployment before larger investments, or parking deal proceeds — balancing liquidity and post-tax efficiency.

As of September 30, around 18 schemes operate under this category, collectively managing assets worth approximately ₹21,000 crore, up from ₹19,919 crore a month earlier. The growing inflows, Bardia said, stress investor preference for predictable, tax-efficient products amid continued market uncertainty.

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