The Post-Tax Yield Dilemma for Cash Parking
Following amendments to debt fund taxation where gains are taxed at slab rates, high-income earners in the 30% to 39% brackets face diminished returns on traditional Liquid Funds. Arbitrage Funds offer a premier tax-efficient alternative.
1. Mechanism of Arbitrage Funds
Arbitrage funds exploit price mispricings between the cash spot market and the futures market. By buying a stock in cash and simultaneously selling its future, fund managers lock in a spread that is virtually immune to equity market direction.
2. Equity Taxation Advantage
Because arbitrage funds maintain average equity allocation above 65%, they qualify for equity taxation:
- Short-Term Capital Gains (STCG): Taxed at 20% (vs. 30%+ slab rate on Liquid Funds/FDs).
- Long-Term Capital Gains (LTCG): Taxed at 12.5% for gains exceeding ₹1.25 Lakh.
3. Liquidity and Spread Tracking on MyPlexus
Monitor yield spreads, rollover percentages, and credit quality of the debt portion via the MyPlexus Cash Parking Matrix.
