An open-ended arbitrage fund which aims to generate returns seeking arbitrage opportunities in the equity and derivative markets.

Summary

Type	An open-ended arbitrage fund	Benchmark Index	Crisil Liquid Fund Index
Min. Investment (lump sum): Additional purchase:	Rs 5,000 and in multiples of Re 1 thereafter Rs 100 and in multiples of Re 1 thereafter	Plans: Options (under each plan):	Regular Direct   Growth Dividend (payout and re-investment facility)
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%*
Entry Load	Nil	Exit Load:	0.50% will be charge if the units are redeemed / switched-out within 90 days from the date of allotment Nil for units redeemed / switched-out after a period of 90 days from the date of allotment
Issue Opens	July 25, 2014	Issue Closes:	August 8, 2014

*Direct Plan shall have a lower expense ratio to the extent of distribution expenses / commissions which is charged in the non-direct Plan

Investment Objective*

The investment objective of the scheme is "To generate income through low volatility absolute return strategies that take advantage of opportunities in the cash and the derivative segments of the equity markets including the arbitrage opportunities available within the derivative segment, by using other derivative based strategies and by investing the balance in debt and money market instruments. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns".

*Source: Scheme Information Document

Is this fund for you?

Axis Enhanced Arbitrage Fund (AEAF) is an open-ended arbitrage fund which aims to generate returns seeking arbitrage opportunities in the equity and derivative markets. So to do so, AEAF will predominantly create hedged positions, whereby it will invest a major portion of its assets in equity, equity related instruments and derivatives (including index futures, stock futures, index options, stock options etc.)

You see, equity market is not always efficient. There could be mispricing in the derivative market and the underlying cash market, and that's there where arbitrage opportunities exist which enables to make gains. AEAF aims to exploit such arbitrage opportunities using different techniques, but in case where such techniques do not exist, will invest in debt and money market instruments and have a diminutive exposure to unhedged equity & equity related instruments.

Exploiting arbitrage requires time and skills. Not all investors can do it. Hence for those who wish to take taking advantage of such arbitrage opportunities, an arbitrage fund can be a good fit provided you are well-informed about how they work. Moreover, as compared to taking exposure directly in equity along with derivatives and playing the markets, arbitrage funds are less risky. But mind you, the success of an arbitrage fund is contingent upon:

• Market volatility;
• Risk-free rate of return; and
• Ability of fund houses to get access to real time market data
   

Market volatility and risk-free returns are the factors that are beyond the control of the fund manager. Thus there is no guarantee that there will always be arbitrage opportunities available. This leaves margin for errors.

Hence, arbitrage funds are appropriate for investors with a conservative-to-moderate risk profile. It is noteworthy that the performance of arbitrage funds is comparable with that of Crisil liquid fund index. But mind you they can no way be substitute for investing in debt mutual funds.

Portfolio & Investment Strategy

Being an arbitrage fund, AEAF will exploit arbitrage opportunities existing in the market and thus predominantly create hedge positions in equity, equity related instruments and derivatives (including index futures, stock futures, index options, stock options etc.). AEAF aims to exploit such arbitrage opportunities using different techniques. But it is noteworthy that, on the total portfolio level the scheme does not intend to take a net short exposure to equity markets.

Also at times when arbitrage opportunities aren't available, AEAF may take a diminutive exposure to unhedged positions in equity and equity related instruments (not exceeding 10% of net assets). Moreover, it may also invest some portion of its asset in debt & money market instruments during such times.

So the AEAF's portfolio will mainly be constructed to hedge, but with the intention to exploit arbitrage opportunities in order to generate returns for its investors, which would be benchmarked against the Crisil Liquid Fund Index.

The asset allocation which will be followed by the fund will be as under:

Instruments	Allocation Range (%)		Risk Profile (Low / Medium / High)
	Minimum	Maximum
Equity and equity related instruments (unhedged)*	0	10	High
Equity, equity related instruments and derivatives including index futures, stocks futures, index options, & stock options, etc. as a part of hedged / arbitrage exposure*	65	90	Medium to High
Debt and Money market instruments** (including investments in securitized debt)	10	35	Low to Medium

*I Equity allocation is measured as the Gross exposure to equities, equity related instruments and derivatives. The scheme will enter into derivatives transactions for hedging. The derivative positions will be hedged against corresponding positions in either equity or derivative markets depending on the strategies involved and execution costs. On the total portfolio level the scheme does not intend to take a net short exposure to equity markets. Unhedged positions in the portfolio (investments in equity shares without corresponding exposure to equity derivative) shall not exceed 10% of the net assets.
** including securitized debt up to 35%. The Scheme will not invest in foreign securitized debt.
(Source: Scheme Information Document)

Fund Manager Profile

AEAF will be managed by the duo Mr Pankaj Murarka and Mr Devang Shah.

Mr Mururka is a fund manager with Axis Mutual Fund since November 2009. Prior to joining Axis Mutual Fund he had short stint with Pipal Capital Management Pvt. Ltd. (from April 2009 to November 2009) as a Principal Officer. Then prior to that, he was with DSP Merrill Lynch Ltd. (as a Portfolio Manager), RARE Enterprises (as Head of Research & Fund Manager), Motilal Oswal Securities Ltd. (in Equity Sales) and UTI Mutual Fund (in Fund Management & Research). He is a Chartered Accountant and holds bachelor's degree in commerce (B.Com). At Axis Mutual Fund, at present he manages Axis Equity Fund, Axis Mid Cap Fund and Axis Small Cap Fund.

Mr Shah is the fund manager for fixed income at Axis Mutual Fund since October 2012 and will manage the debt portion of AEAF. Prior to joining Axis Mutual Fund he has worked at ICICI Prudential Mutual Fund (as a Fund Manager), Deutsche Mutual Fund (as an Analyst), and was also the Assistant Manager at Pricewaterhouse Coopers. He too like Mr Murarka is a Chartered Accountant and holds bachelor's degree in commerce (B.Com). At Axis Mutual Fund, at present he manages Axis Dynamic Bond Fund (along with Mr R. Sivakumar), Axis Income Fund, Axis Liquid Fund, Axis Constant Maturity 10 Year Fund, Axis Capital Protection Fund (along with Mr Sudhanshu Asthana) and Axis Hybrid Fund (along with Mr Jinesh Gopani).

Fund Outlook

As per the mandate while AEAF will aim to exploit arbitrage opportunities existing in the market and thus predominantly create hedge positions in equity, equity related instruments and derivatives (including index futures, stock futures, index options, stock options etc.); the returns generate by the fund will be contingent upon market volatility, risk-free rate of return and ability of the fund house to get access to real time market data. Market volatility and risk-free returns are the factors that are beyond the control of the fund manager. Thus there is no guarantee that there will always be arbitrage opportunities available. This will always leave small margin for errors.

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