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Arbitrage Strategy Leveraging LAMF for Enhanced Fixed Income Returns
Investors can generate a 1–2% tax-efficient spread using LAMF-based fixed income arbitrage by exploiting yield gaps between borrowing and investment rates.
High-net-worth investors are employing a carry trade strategy using LAMF by borrowing at around 9% and reinvesting into AAA-rated short-term debt instruments yielding 10-11%.
The resulting spread of 1-2% offers low-risk alpha when managed within short tenures. The approach is suited for those with a high-risk tolerance and adequate liquidity backup. Maintaining a loan-to-value ratio of 50-60% ensures safety and compliance with SEBI regulations.
The trade's success relies on interest rate stability and disciplined reinvestment.