STT Hike to Trim Arbitrage Fund Returns by 30 Bps: Edelweiss MF

• Finance Minister Nirmala Sitharaman's Union Budget 2026 announced an increase in Securities Transaction Tax (STT).
• Edelweiss Mutual Fund's Bhavesh Jain predicts a 25-30 basis point (bps) drop in arbitrage fund returns due to the STT hike.
• The revised STT rates will be effective from April 1, with the impact reflecting in returns thereafter.
• Arbitrage funds may attempt to offset costs by seeking better rollover spreads, but some impact on returns is unavoidable.
• Despite the impact, arbitrage funds are expected to remain more tax-efficient than liquid funds, though the gap may narrow.

Why It Matters: The STT increase will reduce arbitrage fund returns by about 30 bps, effective April 1.