I have invested in an arbitrage fund and income plus arbitrage fund on the advice of a friend. What is the difference between the two? If I sell both the funds after two years, what will be the tax implications?

S. Sanyal, Siliguri

An arbitrage fund and an income plus arbitrage fund are different. An arbitrage fund is treated as an equity fund; gains become long-term after 12 months and are taxed at 12.5 per cent plus surcharge. An income plus arbitrage fund is a fund of funds; After the Union Budget announced on July 23, 2024, gains become long-term after 24 months and are taxed at 12.5 per cent plus surcharge. If both are sold after two years, both will be taxed as long-term at 12.5 per cent plus applicable surcharge and cess; the main difference is the 12 month rule for the arbitrage fund versus the 24 month rule for the income plus arbitrage fund.

New fund offers

I am a new investor and have started investing in mutual funds. I am reading that there are a lot of new fund offers and would like to know if its prudent to invest in them?

Sandip Chatterjee, Calcutta

Building wealth isn’t about following trends; it’s about what works. The key elements are discipline, time, and sticking with funds that have a proven track record. New Fund Offers (NFOs) are new mutual fund schemes without any performance history. They’re like an unproven car model — the manufacturer makes promises, but there is lack of real-world data. Same with NFOs. You can’t analyse their past returns, volatility, or how they perform in different market cycles. For new investors, it may be safer to choose an already established fund. A proven history allows for a more informed decision based on the actual performance and risk data. This approach reduces uncertainty and may help align investments with your financial goals.