New Delhi, June 21 -- Arbitrage funds are a type of hybrid mutual fund that aims to generate returns by taking advantage of price differences in the cash and futures markets. The strategy involves buying a stock in the cash market and simultaneously selling the same stock in the futures market when it is trading at a higher price, thereby locking in the price difference.

Since the fund takes equal and opposite positions in both markets, its returns are less dependent on the direction of the stock market and more on the availability of arbitrage opportunities.

So, let's take a closer look at what arbitrage funds are, how they work, the key factors investors should consider before investing, and the benefits and risks associated with thes...