Arbitrage Fund Returns: Performance Insights & Market Trends

 


Understanding the Role of Arbitrage Funds in 2025

In 2025, the investment landscape is defined by global market volatility, unpredictable interest rate movements, and persistent geopolitical tensions. Against this backdrop, investors ranging from HNIs and family offices to institutional portfolio managers are increasingly turning to low-risk investment strategies that still deliver steady, risk-adjusted returns.

One such strategy that is rapidly gaining momentum is the arbitrage fund, a market-neutral investment approach designed to profit from short-lived pricing inefficiencies between related markets or securities. By taking simultaneous long and short positions in the same or equivalent assets, these funds aim to lock in near risk-free gains, regardless of whether the market is bullish, bearish, or moving sideways.

Unlike traditional mutual funds that rely on market direction for growth, arbitrage mutual funds are built to perform in all market conditions. They operate by capturing small but consistent price gaps through strategies such as:

  • Cash-futures arbitrage – exploiting price differences between the cash and futures markets

  • Index arbitrage – leveraging mispricing between stock indices and their constituent stocks

  • Currency arbitrage – capitalizing on exchange rate differentials across markets

  • Merger arbitrage – trading around corporate mergers and acquisitions to profit from deal-related mispricings

For many investors, the best arbitrage funds in 2025 offer a compelling combination of capital preservation, low volatility, and returns superior to liquid funds or short-term debt instruments. With global arbitrage opportunities expanding due to faster market connectivity and AI-driven trade execution, these funds are poised to play a pivotal role in modern portfolio construction.

How Arbitrage Fund Returns Compare to Other Asset Classes

Historically, arbitrage fund returns have been modest but reliable. In normal market conditions, they typically deliver 4% to 7% annualized returns, making them a preferred choice for investors who value capital preservation over high-risk growth.
In 2025, however, arbitrage funds are benefiting from elevated market volatility, a condition that creates more frequent and wider pricing inefficiencies. This has pushed some best-performing arbitrage funds to deliver 10-12%+ annualized returns, rivaling even short-term corporate bond funds.

Key factors influencing returns in 2025:

  • Higher volatility → More arbitrage opportunities

  • Stable interest rate spreads → Predictable profit margins in cash-futures trades

  • Faster trade execution technology → Reduced slippage and improved capture rates

  • Cross-border arbitrage → Access to multi-currency and multi-market mispricings

Market Trends Driving Arbitrage Fund Performance in 2025

The arbitrage fund landscape in 2025 is being shaped by a mix of technological advancements, evolving market structures, and stronger investor demand for low-risk, market-neutral strategies. These trends are not only enhancing the performance of the best performing arbitrage funds, but also making them more accessible to HNIs, family offices, and institutional investors worldwide.

1. Increased Institutional Participation

More institutional investors and high-net-worth individuals (HNIs) are allocating significant capital to arbitrage mutual funds for short-term capital deployment, particularly during periods of heightened market uncertainty. This influx of professional capital has improved liquidity, tightened bid-ask spreads, and lowered trading costs, enabling funds to execute strategies more efficiently and consistently.

2. Growth in Cross-Asset Arbitrage

The adoption of multi-asset arbitrage where funds simultaneously exploit pricing inefficiencies across equities, currencies, commodities, and bonds is expanding both return potential and risk diversification. For example, a fund might combine currency arbitrage with index arbitrage to hedge volatility in one market while profiting from another. This approach is increasingly popular among global arbitrage funds with access to multiple asset classes and geographies.

3. Tech-Driven Arbitrage Execution

Modern high-speed trading platforms and AI-powered analytics are transforming how arbitrage is executed. Leading top arbitrage funds can now detect and capture price discrepancies in milliseconds, increasing both the frequency and success rates of trades. This tech-driven execution not only enhances returns but also reduces operational risks, making it easier to manage complex, multi-market positions.

4. Regulatory Clarity in Emerging Markets

Regulatory frameworks are becoming more supportive of cross-border fund flows, especially in financial hubs like the UAE, Singapore, and Mauritius. Clearer rules for foreign investment, tax treatment, and fund registration have boosted global participation in arbitrage strategies. For investors, this means greater transparency, improved legal safeguards, and access to a wider range of good arbitrage funds that meet international compliance standards.

Risk & Return Profile: Why Arbitrage Funds Appeal to Conservative Investors

While arbitrage trading is often seen as low-risk, it’s not entirely risk-free. Key risks include:

  • Execution risk if market prices converge before both trades are completed

  • Regulatory changes that affect capital mobility or taxation

  • Interest rate changes impacting spreads in derivatives

Still, for investors seeking predictable, low-volatility returns, good arbitrage funds remain an attractive option particularly in choppy markets where directional bets are riskier.

Outlook for Arbitrage Fund Returns in 2025 and Beyond

Industry analysts forecast that arbitrage mutual funds will continue to deliver stable, risk-adjusted returns throughout 2025, driven by a confluence of favorable market conditions and evolving investment strategies.

Key factors supporting this positive outlook include:

  • Persistent volatility in global markets – Heightened geopolitical uncertainty, currency fluctuations, and sector rotations are creating more frequent pricing inefficiencies for top arbitrage funds to capture.

  • Stable-to-slightly-rising interest rates – This environment supports cash-futures arbitrage profitability and makes arbitrage funds more attractive than liquid funds or short-term debt instruments.

  • Wider adoption of cross-market strategies – Multi-asset arbitrage spanning equities, currencies, commodities, and bonds is enhancing returns while diversifying risk exposure. 

For investors considering an allocation, the best arbitrage fund will depend on individual portfolio goals, risk tolerance, and investment horizon. Funds with:

  • Global market access

  • Multi-asset coverage

  • Technology-driven execution

  • Robust capital preservation frameworks 

such as Radiant Global Fund are particularly well-positioned to outperform peers in the current landscape.

Key Takeaways

  • Arbitrage funds thrive on market inefficiencies, not market direction, making them highly resilient in volatile conditions.

  • 2025 has been favorable due to increased volatility, high-speed execution platforms, and AI-driven trade analytics.

  • Returns have improved, with best performing arbitrage funds delivering 8%+ annualized in some cases.

  • Ideal for HNIs, institutional investors, and conservative investors seeking low-risk, consistent growth.

If you want a low-risk strategy that works in any market condition, now is the time to explore arbitrage funds and 2025 might just be their best year in over a decade. 

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