A simple systematic low risk income generating strategy

Its quite sometime I had wanted to write this thread, got some time today. In this thread I will try to explain how one can easily generate regular income at very low risk and is suitable for someone who is looking for an steady alternative to FD/debt MF as the returns in those instruments are very low these days.

Generating a steady income from markets need not be complex, what I am sharing is nothing new, people having some experience in the market would already know about this. My objective here is only to make the process systematic and simple so that even who are not experts can take advantage of this and my request is that please share this strategy with those who are struggling with the lower FD returns and exploring ways to invest in equity but are worried about the volatility and risk.

I will explain the strategy in 2 parts, in the first part I will explain the steps to build the capital assuming that the person is currently working and wants to build the capital over the years through equity and in the 2nd part how he can generate regular income from the capital base.

The strategy is very simple as we just need to 2 ETF's: NIFTYBEES & GOLDBEES for the capital building, these 2 ETF's have become very liquid in the last one year and does not require high capital to start and we will be selling NIFTY index call options against this capital base. The reason for selecting these 2 ETF's are that NIFTY index will not go to zero and will grow as per India GDP growth which is very optimistic for a long term and GOLD is a natural hedge to the Equity market. These 2 together will ensure that our investments are well balanced.

Capital Building Steps:
1. As and when you have some savings available for investment, invest the amount equally between these 2 ETF's. i.e the ratio should always be 50%:50%
2. At every next investment, rebalance them so that the ratio remains constant at 50%:50%.
3. This rebalance is very important as that will ensure that the volatility of the equity curve is low and the compounding happens faster.

For example:
1. On Jan 1st I have rs 2000 /- available for investment, I will buy NIFTYBEES of rs 1000 and GOLDBEES of rs 1000.
2. On Feb 1st I have rs 2000 /- available, but say the value of NIFTYBEES in the PF is now rs 1100 and GOLDBEES is rs 1050. i.e total rs 2150 /-
Now to rebalance we just add the new investment amt to pf value and divide by 2 ...i.e 2150 + 2000 = 4150/2 = 2075
The new investment in NIFTYBEES would be 2075 - 1100 = 925 and new investment in GOLDBESS will be 2075 - 1050 = 1025
3. This need to be repeated for every new investments being made and continued till one have built a capital base equal to 1 lot of nifty value. i.e if nifty index value if 14500, then 75 * 14500 = 11 Lakh
4. This investment can easily yield 10-15% returns over the years and will easily beat the FD/MF returns.

Income generation Steps:
If someone already have the capital base and they are just looking for the income generation, then it is fine to invest the capital in this strategy in one go, however it is always better to invest in parts at regular intervals, preferably whenever there is a nifty down move of 400-500 odd points.

1. Even though during this step, there is no regular investments, the rebalancing process should not be stopped.
2. Every month or quarterly the allocation between NIFTYBEES and GOLDBEES should be rebalanced and reset to the 50%:50% ratio.

Steps to generate regular income:
1. Once the capital base is ready, pledge the ETF's with broker to generate capital which is sufficient for selling 2 Lots of NIFTY OTM calls. Though the capital is for 2 lots, we will just be selling 1 lot of NIFTY OTM calls.
2. Selection of the OTM NIFTY calls to sell: sell the NIFTY next month OTM calls 45days before expiry and which gives a premium of minimum 100 points. Since we are selling the Calls in the mid of month for the next month, we need the capital for 2 lots as the next lot is sold at the mid of next month. The calls are usually 800-1000 points away from current index price and have a very low probability to go into money.
3. In the event which is rare if the NIFTY price touches the sold call, book the loss by selling some part of the PF, there is no problem booking the loss as the NIFTYBEES & GOLDBEES combination would have generated enough profits to offset the loss.
4. In situations where there is crash and NIFTY price goes down a lot, its not a concern as unlike stocks NIFTY index will not go to zero.
5. This option selling can easily generate 5-10% returns even if one is conservative.

In summary, Its a misconception that investments in equity markets are risky, this strategy can easily generate 15-20% returns much better and safer than risky FD's/Debt funds. Give it a try and I can confidently say this return is achievable, just don't get greedy and take higher risks.

If you have any queries, feel free to ask, I will try to answer whenever I get time.
Nice strategy....OTM at which strike range would be ideal?
I have been using a similar strategy where I sell only one call option. As I am gaining some experience in it, I am not taking unnecessary risks that I have no idea about.


Active Member
I used to do similar strategy a year back but in stocks.

I used to hold 50% of lot size of any stock in cash and then sold OTM call as well as put.

I used to book profit once 50% of the collected premium gets eroded. SL was always 20% of the premium collected.

Had a good run till lot value started increasing due to bull run.

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