You don’t always have to invest cash for derivative trading, in fact, most HNIs don’t. Moneydhan will first collateralize your mutual funds with the stock exchange.
For every asset that you put up, you receive margin after a ‘haircut’. For example, if you collateralize funds worth ₹10 lakhs, the exchange might give you a margin of ₹8 lakhs for derivative trading, the difference of two lakhs is kept by the exchange to protect itself from market downsides. This is referred to as a ‘haircut’.
We use the margin gained from your mutual funds to execute very conservative derivative strategies. These strategies consistently generate returns between 0.8%* to 1.2%* every month.
During periods of extreme volatility in the stock markets, margin requirements for derivatives may increase. This may require us to close some of your open positions leading to losses.
In case of a loss from derivative positions, your underlying mutual funds may be liquidated unless replaced with additional capital.
In periods of correcting markets, value of your mutual funds may drop. This will lead to lower margin available and lower income from Beater Strategies.
Our approach inevitable needs a strong risk management system in place. Our objective is to protect capital fiercely, then earn returns.
Lack of Professionals
You have hired a fund manager via Mutual Fund to manage stock picking and managing it. They are the professionals w.r.t debt or stocks. For Derivatives, Skilled professionals are not so popular. SEBI restricts MF and PMS to particulate in derivatives with leverage. However Advisors like us can guide you in your individual Demat Account.
The retail experienced traders community aim to generate 20%-30% returns per year from derivatives. An 6% extra derivatives income in a year is ridiculously easy for many of them. They mock this product. We believe, Since you have Hired a fund manager via MF already, its likely that you have no clue about derivatives as well. It is notorious for losses. Bear in mind, our expectation is close what a Bank Interest Rates are. This low expected returns makes it fairly low risk.