Arbitrage funds are equity funds that invest in stocks as well as equity derivative instruments of matching securities and volume. Franklin Templeton launched Franklin India Arbitrage Fund, an openended arbitrage fund.The NFO is open till November 18. Loose Definition of Arbitrage: A trading strategy that earns something from nothing, no matter how the market evolves in the future. The arbitrage bands are the range between buying and selling the underlying basket, and the bands tend to be fairly constant. In an arbitrage fund, the fund manager invests in equities only when he finds a definite opportunity to earn returns.