Axis Arbitrage Fund - What is Arbitrage Mutual Fund, Fund Facts, Debt Allocation

Fund Manager: Viresh Joshi

Fund Facts

•    Completely hedged equity portfolio
•    Month end allocation to equity instruments – ~66%
•    Average rolls for the current month – 35 bps

Monthly Recap

The markets have been volatile over the last few months and market pessimism on current valuations have been driving spreads lower. The broader markets saw a decline for the first month since January. Large cap names continue to drive markets. Narrowing markets also a lead indicator for weakness in arbitrage spreads.

Market-wide rollovers at 91% vs. (92% average rollovers seen in last three series) are inline to 3M and also the OI base is at multi month highs. Stock futures rollovers stands at 93% which is again inline vs average rollovers of last three series at 91%. In the expiry week the average roll levels across stock futures moved from approx. 30 to 31 bps seen on expiry -4 to as high as 40-45 in few names. Nifty futures rollover stands at 84% which is higher than average rollovers of 82% (last three series). Nifty futures will start the August series at multi month high OI base at Rs 21,700 Cr (~13.05mn shares) vs. OI of Rs 15,000 Cr (~9.52mn shares) seen at the start of August series.

Source: Edelweiss Alternative Research, NSE, Axis MF Research. Data as of 26th August 2021

Expiry Month	Average Arbitrage Rolls (In bps)	Gross Return Equivalent (Annualized %)	TREP Rates (Annualized %)
Aug-21	35	4.20%	3.00%*
Jul-21	37	4.44%	3.20%
Jun-21	55	6.60%	3.22%
May-21	54	6.48%	3.23%
Apr-21	50	6.00%	3.25%
Mar-21	65	7.80%	3.37%
Feb-21	31	3.72%	3.22%

Source: Edelweiss Alternative Research, CCIL, Bloomberg, Axis MF Research. *TREP rates as of 27th August 2021. Returns are gross of expenses on the equity component and are not an indication of overall fund returns.

 
Debt Allocation

The fund has completed its pivot to Axis Liquid Fund & Axis Ultrashort Term Fund as part in an attempt to improve the efficiency of portfolio allocation in the debt component of the fund. In addition to acting as margin for the derivate allocation the mutual funds are actively managed to optimize returns from the money market and short bond space. Incrementally the debt allocation will follow a mix of mutual fund strategies and direct debt allocations to take advantage of market yields.

Debt Quants

Average Maturity (In Days)	Modified Duration (In Days)	Macaulay Duration (In Days)	YTM (%)
92	88	90	3.

Data as of 30th July 2021

Going Forward

Strong non institutional participation in the derivative segments, interest rates and healthy rollovers remain key determinants of arbitrage spreads. We will continue to focus on execution and identifying spreads across the market capitalizations

Product Labelling & Disclaimers

Fund Name	Riskometer	Product Labelling
Axis Arbitrage Fund (An open ended scheme investing in arbitrage opportunities)		This product is suitable for investors who are seeking* •    Income over short to medium term •    Investment in arbitrage opportunities in the cash & derivatives segment of the equity market
Axis Liquid Fund (An open ended liquid scheme)		This product is suitable for investors who are seeking* •    Regular income over short term •    Investment in debt and money market instruments
Axis Ultrashort Term Fund (An open ended ultra-short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 months and 6 months)		This product is suitable for investors who are seeking* •    Regular income over short term •    Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months - 6 months

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer
Past performance may or may not be sustained in the future. Instruments and companies mentioned may or may not form part of the portfolio and are subject to the discretion of the fund manager and the fund’s current investment strategy. The note should not be treated as a recommendation and investors are advised to consult their financial advisers with regards to the suitability of the product in their financial portfolio.

Data updated as on August 30th, 2021. Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment
 
Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

                                                   Mutual Fund investments are subject to market risks, read all scheme related documents carefully.