JM Financial Mutual Fund launches equity and derivatives fund

JM Financial Mutual Fund today announced the launch of its 'JM equity and derivative fund'. This fund is an income oriented interval scheme that will seek to generate income through arbitrage opportunities emerging out of mis-pricing between the cash market and the derivatives market. The IPO period for this fund will be from February 4 to February 21, 2005, with the earliest closing date being February 11,2005.

Announcing the launch of the fund, Krishnamurthy Vijayan, CEO, JM Financial Mutual Fund said, " This is perhaps for the first time in India that a mutual fund product launch has been preceded by a three month education programme covering not only all our sales staff but also our operations team and employees of our key distributors, individual intermediaries and staff of corporate clients."

These programmes have been organised by Dr Manoj Vaish, president, Dun and Bradstreet, who was one of the architects of the equity derivatives market in India. So far the company has trained around 1,000 intermediaries, corporate clients and individual financial advisors (IFAs), with faculty from D&B in seven cities and our fund managers in 14 other cities.

Talking about the fund, Krishnamurthy said," The returns generated will be by 'Arbitrage' and will be market neutral without directional exposures thus making it like a new asset class".

The JM Equity and Derivative Fund is focused on arbitrage opportunities which will invest in equity shares and take simultaneous sale position in the derivative market in the same underlying security. The following hypothetical example will make the concept clearer.

Buy ABC @ Rs.300/- and sell one month ABC Futures @ Rs.310/-.

	Scenario I	Scenario II
ABC Price @ expiry	400	200
Profit/Loss on Cash	100	(100)
Profit/Loss on Futures	(90)	110
Net profit	10	10

Arbitrage is not a new concept. Traders have been undertaking arbitrage informally in the commodities market and ever since stock futures were introduced this has been one of the preferred avenues for the 'private client' category of high net worth investors.

Internationally too, this class of funds, often called hybrid funds, is becoming popular, with many investors becoming uncomfortable with the volatility of equity and the low returns of debt. Now for the first time, you can participate in Arbitrage with just Rs.5000/-; but do pick one of our trained intermediaries so that they can advise you correctly and explain the offer document, its terms and the concept.