Request your POV on this:
Supposingly, if one got invested in nifty (via etfs/Index fund) for approx 8.5 lacs…
Wont it be great to withdraw all money and buy a nifty future keeping let say 2.5 lac in trading account and invest remaining 6 lacs in Fixed income for say 6%.
With this one can earn extra 6% on 6lac without any additional risk.
What say? am I missing any drawback/blindpots in this?
What are the various possible scenarios that you have considered already?
Can you share the various possible returns of such a Nifty future in the various scenarios,
and compare it to the returns of 8.5L invested in the Nifty index (in the same scenarios) ?
What about drawdowns and MTM Loss that has to be made good daily. If you have extra cash for that, then it’s fine.
You missed the Carry Cost, its almost equal to as if you took a loan for the rest amount, there’s content availableon google on carry cost. Factor that in plus the taxes as now it would be short term gain.
Futures are at a premium. So you will lose around 60 to 80 points every month. Plus there is rollover cost, brokerage, taxes etc.
Instead what you can do is pledge index funds or nifty bees for margin and sell deep OTMs only on the expiry day. When I say deep, sell as deep as 3 percent away from strike on both call and put. Also, do it only on the expiry day to avoid overnight risk.
Collect may be around 4 points in agreegate. After all expenses you may make around 100 rupees per week. So totals to around 400 per month. Funds required per lot would be 1lakh. So that’s 0.4 percent per month. This works to 4.8 percent per annum. So this return is in addition to whatever you get from nifty.
A lot of Nifty futures requires around 1.25 lk. Keeping another 1.25 lks already. which is >10% for MTM for a possible drawdown.
Agree on Carrying cost part. But now it would be taxed as business income and not short term capital gain - which is even better since we can claim multiple expenses against the profits earned.
Roll over cost would be around Rs 300 per month per lot. On premium agreed 60 points pm is resulting equal to 6% on 6 lakhs.
@ShubhS9 @Prayag Can you please add your inputs?, Do you think this strategy is worth it?
Any negative points I am missing out on?
Did I miss out on the part where nifty “falls” and keeps falling down, or there is some wonder way the 6 percent return is gonna hedge that fall somehow.
The starting point is that one is already invested in index funds of 8.5 lk. So downside is same in both.
If your strategy involves going long and short on Nifty index by trend following then it would make sense. If you are going long only then it may not work.
Since you already hold index worth 8.5lakhhs. Sell futures. You will get around 60 points every month. Plus you can sell deep OTM puts. If you do it together margin required will also be lower since it will be considered as a hedged position. You can collect around 100 points per month.
What about opportunity cost of 8.5 lakhs?