What if there was a way to take advantage of stock market volatility without putting your capital at risk? What if you could earn debt mutual fund-like returns without exposure to credit, default, or duration risks? What if there was an equity product that offered the safety of capital protection while delivering steady, debt-like returns?

If these questions pique your interest, it’s time to explore one of the best-kept secrets of the Indian mutual fund industry: the Arbitrage fund, according to a media note by Baroda BNP Paribas Mutual Fund.

The note mentioned that while savings accounts yield as little as 2.70% per annum, schemes like the Baroda BNP Paribas Arbitrage Fund have delivered 7.15% returns for investors over the past year (see table below). With ongoing stock market volatility, arbitrage funds are poised to capitalize on pricing mismatches between cash and futures markets, offering investors relatively risk-free returns.