In a comprehensive discussion on arbitrage funds, an investment expert sheds light on the mechanics and benefits of these funds, which utilize equity and derivatives to capitalize on market discrepancies. With a focus on the last 15 years, the expert emphasizes the fund's design to minimize losses, despite the inherent market risks associated with mutual funds. They explain how arbitrage funds work by buying stocks at a lower price while selling future contracts at a higher price, securing steady, albeit modest, returns akin to liquid funds or ultra-short-term bonds. The conversation also explores the tax advantages of these funds, including favorable long-term capital gains treatment.