New Delhi, Aug. 17 -- A new category of debt mutual funds, created to offer investors better after-tax returns, is struggling to make its mark despite a rapid rise in the number of such offerings. These 'income plus arbitrage' funds have grown to 22 in less than two years of launch, with sector majors such as HDFC Mutual Fund and Sundaram Mutual Fund launching their schemes this year.

Investor flows into these schemes are reversing. After pouring Rs.21,000 crore into income arbitrage funds in 2025, investors have pulled out around Rs.2,000 crore this year through 31 July, according to MFI360 Explorer, a fund research tool from Icra Analytics.

An income plus arbitrage fund combines debt investments for interest income with arbitrage stra...