Thanks for quick continuation on the discussion.
Please let me know whether I understand your solution correctly
I interpret your solution as follows
1) I must get into a set of instruments/ trades that are capable of generating at least 55% return annually (meeting with monthly/quarterly targets).
2) 2% commission is on the expense side of the fund . so it is deducted directly from pre-tax profits.that makes target on pre-tax profit (statement 1 to around 56.12% annually (Am i right?)
3) Trading strategy involves which type of instruments? only equity and derivatives? (or is it money makes money always :lol
4) Dont you think this will violate the condition (Risk appetite - low) in the problem?
Please let me know whether I understand your solution correctly
I interpret your solution as follows
1) I must get into a set of instruments/ trades that are capable of generating at least 55% return annually (meeting with monthly/quarterly targets).
2) 2% commission is on the expense side of the fund . so it is deducted directly from pre-tax profits.that makes target on pre-tax profit (statement 1 to around 56.12% annually (Am i right?)
3) Trading strategy involves which type of instruments? only equity and derivatives? (or is it money makes money always :lol
4) Dont you think this will violate the condition (Risk appetite - low) in the problem?
AUM = 40 cr
20% target (post expenses+tax ) = 8 cr
Assuming comm as 2% of AUM means, comm = 2% x 40 cr = 80 L
Max exposure limit is 60% of AUM = 24 cr
You need to make 55% profit on 24 cr, means profit = 13.2 cr
Profit, After tax @ 33%, = 8.8 cr
profit after comm = 8.8 - 0.8 = 8 cr = TGT met :clap:
Now, what instrument to trade in ?
One can trade in equity / derivative segment. Personally, i prefer instruments where options are liquid. That give me flexibility to adjust my risk per trade. I prefer Nifty as that has good liquidity at wider range of strike price.
Options if used wisely can generate 90-95% probability trades. It also helps in minimizing risk at the cost of potential profit...
Personally, i trade in Nifty and nifty options only. My profit target 15% per qtr and i have a very low risk appetite.