Profit from Futures

People relate the F in Futures to the F in Fire. Not if it is used in the right way. The strategy I propose here is to invest in futures if you are bullish about the markets. That way you will earn better returns. Here is the analysis:

Suppose you invested Rs 1 lakh in Nifty Index Fund and if you did it on 31st March 2007. The number of units you would have got would be around 26. In one year, you would have made Rs 27,700. Considering 1% management fee, you would have gained Rs 27,400. A return of 27.4%.

Suppose you invested in ONE lot of Nifty futures, the margin would have been Rs 20,000. If you rolled over the series for one full year, you would have gained Rs 37,000. The is after taking into consideration the brokerage, STT and Short Term Capital Gains Tax. The margin at any point in time would not have exceeded Rs 35,000. A clear outperformance of 37% over the index fund. If you buy TWO lots, you would have gained Rs 74,000, a 174% outperformance compared to an index fund . Mind you - I am not even considering the bank interest on the uninvested amount.

The key is to set the exposure you want to take and be within those limits. Discipline is what is required while playing with futures or else the fire will engulf you. Write to me at sshravankumar@yahoo.com incase you need the working.