Arbitrage - Spread too thin?

For a while now returns from arbitrage schemes have fallen and after meeting with several fund managers, it seems likely that the returns will remain on the lower side for a while. 

The reasons are manifold - 

• In the 2014 budget, taxation on debt products changed. In order to get relief on these, you have to hold it for 3 years and over.  Arbitrage has a lock in of 1-3 months so money gravitated to it.
• Over the last year, interest rates have fallen, and since most arbitrage funds have about 35% in debt, returns have been affected due to this too. 
• And then, fund houses launched hybrid products which include arbitrage components. So more money went into arbitrage and the spreads reduced.
• Finally, the market has been moving sideways and for arbitrage to give good returns, the market has to be on the rise and volatile.

If you are looking for higher returns than what you have been getting in the last year, it's not a bad idea to explore other options.