Arbitrage funds are low-risk hybrid mutual funds that profit from price discrepancies between cash and futures markets. They typically buy shares in the cash market and sell them in the futures market, locking in profits regardless of market direction. According to the Securities and Exchange Board of India (SEBI), these funds must allocate at least 65% of their investments in equities. For example, if a company's share is priced at ₹500 in the cash market and ₹510 in the futures market, the fund manager can lock in a profit of ₹10 per share through simultaneous transactions. While these funds are designed to minimize price risk, they are not entirely risk-free, especially in bearish markets where futures may trade at a discount. Investors are advised to have a short- to medium-term investment horizon of 3-6 months and to invest through a lump sum rather than systematic investment plans (SIPs). Before investing, it is essential to read the scheme offer document for details on investment strategies, risks, and fees. Management fees, charged as a percentage of assets under management, will also affect returns.