On Wednesday 10 Jun 2026 Nifty closed at 23,214.95. The June future settled at 23,240.10 and the July future at 23,344.90. One index, three prices, each higher than the last. That staircase is easy to read as a forecast. It is mostly the price of time. The June future carried 25.15 points of premium over the index with 20 days to run, and interest alone should have added about 65.0. I read a premium as a schedule before I read it as a signal. This lesson takes it apart: what the basis is, what the cost of carry adds, and why the premium has to melt by expiry. Every figure comes from NSE end of day files, dated and not live.

3By the end you can

  1. Say what the basis is and work out the interest part of a premium from the spot, the rate and the days.
  2. Explain why a premium is not a forecast and why it reaches zero at expiry.
  3. Name what pushes a premium away from interest: dividends, arbitrage costs and demand.
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Watch in the terminal: which numbers am I looking at? A short tutorial on sample data.

The idea, plainly

A future and the index it follows meet on one day, the expiry. Until then they can differ, and the difference has a name. The basis is the future's price less the index. When the future is higher, the basis is a premium.

Future = spot
+ interest on the spot
less dividends

Interest =
spot x rate x days / 365

One index, three prices: each later date adds more carry

On 10 Jun 2026 the index closed at one level, the June future settled higher and the July future settled higher again: each later date adds the cost of carry for the extra daysDiagram with 3 boxes. The index closed at 23,214.95 to June future 23,240.10; June future 23,240.10 to July future 23,344.90.The index closed at 23,214.9510 Jun 2026June future 23,240.10premium 25.15 points, 20 daysleftJuly future 23,344.90premium 129.95 points, 48 daysleft
Settlement prices on 10 Jun 2026. Each step up is mostly interest for the extra days, less dividends. It is not a forecast. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026.
Read 5 more paragraphs, 278 words

Why would anyone pay more for the future? Think of rent on money. To own the index today you pay for it today. A future lets you pay at expiry. The seller, who can hold the index meanwhile, charges you for the money tied up. Against that, whoever holds the shares collects the dividends paid before expiry. The future's owner does not, so the price is lowered by them.

That is the cost of carry. Interest is the easy part.

I use a short term government bill yield as the rate, a proxy and not anyone's real funding cost. Dividends are the part you can only estimate.

What does a premium cost the buyer of a future? If the index finishes where it started, a long future loses the whole premium by expiry, and that looks like a fee. Set it against the money you did not spend. For the same exposure you left your rupees in a bank or a bill, and they earned the interest that the premium is made of. Before dividends and costs the two roughly cancel. The premium is the price of holding the index on your behalf, not a toll.

Two things follow. First, the premium is a schedule. At expiry the exchange sets the future's final price to the index close, for expiries before 7 Dec 2026, so the premium has to be zero on that day whatever the index does. Second, the premium is not a forecast. Interest, dividends and the cost of arbitrage set it in advance, and none of them knows where the index goes next. The short answer is on the cost of carry question page.

Who keeps the premium honest?

Traders who can hold the whole index basket keep the future close to its fair value. When the future is dear against the shares, they sell it and buy the shares. When it is cheap, they do the reverse. They earn the gap, less their costs, so a gap smaller than their costs can stay. For most retail traders the costs eat it. The trade is the subject of module I29, and the fair value arithmetic with dividends is in module I01.

Arbitrage keeps the premium near fair value, down to the cost of doing it

When the future is dear against the shares, traders sell the future and buy the shares; when it is cheap, they do the reverse; either way they hold to expiry, the two prices meet and the gap is kept, and a gap smaller than their costs staysDiagram with 5 boxes. Future dear against the shares to Sell the future, buy the shares; Future cheap against the shares to Buy the future, sell shares held; Sell the future, buy the shares to Hold to expiry: the prices meet and the gap is kept; Buy the future, sell shares held to Hold to expiry: the prices meet and the gap is kept.Future dear againstthe sharesFuture cheap againstthe sharesSell the future, buythe sharesBuy the future, sellshares heldHold to expiry: the pricesmeet and the gap is kepta gap smaller than the costsstays
Illustration of the mechanism, with no prices. Costs include tax, exchange charges, funding and the price paid to trade the whole basket. Source: RupeeCase illustration of the cash and carry trade that the NSE Nifty 50 Arbitrage index tracks. As of 16 Oct 2026.

Worked example: the premium on 10 Jun and 29 Jun 2026

Here are the June and July futures on 10 Jun 2026, with the interest part worked out at the bill yield for each horizon, 5.11% for June and 5.15% for July. Interest is worked out with the formula above.

10 Jun 2026June futureJuly future
Days left2048
Future settles at23,240.1023,344.90
Premium over the index, points25.15129.95
Interest on the index, points65.0157.2
Interest less premium, points39.927.3

Annualised, the next month premium ran highest in late 2025 and lowest by mid 2026

Premium of the next month Nifty future over the index, annualised, at each close from 1 Jul 2025 to 17 Jul 2026: it climbs to its highest in late 2025 and falls to its lowest from May to Jul 2026Nifty future basis: from 5.3% at 1 Jul 2025 to 2.6% at 17 Jul 2026, high 9.8% at 27 Oct 2025, low 2.5% at 14 Jul 2026.4%6%8%10%Jul 2025OctJan 2026AprJul2.6%
Simple annualised premium of the next month Nifty future over the index at each close. Dividends going ex before expiry pull a premium down, which is one possible reason for the low readings. Rates and demand move it too, and this file cannot separate the causes. Source: NSE end of day data, computed by RupeeCase. As of 17 Jul 2026.

The June future's premium trended down in jumps, not in a straight line

Premium of the June Nifty future over the index close in points, from 1 Jun to 29 Jun 2026: it trends down in jumps rather than in a straight lineNifty future basis: from 79.4 at 1 Jun 2026 to 26.6 at 29 Jun 2026, high 120 at 2 Jun 2026, low 8.3 at 17 Jun 2026.2550751001251 Jun8 Jun15 Jun22 Jun10 Jun29 Jun26.6
Future settlement less the index close, in points, at each close from 1 Jun to 29 Jun 2026. On expiry day, 30 Jun, the final settlement price is the index close, so the premium is zero by rule. Dividends, small timing gaps between the index close and the future's settlement, and demand all move it, and an end of day file cannot separate them. Source: NSE end of day data, computed by RupeeCase. As of 29 Jun 2026.
Read 4 more paragraphs, 279 words

On both contracts the premium sat below the interest. Dividends can explain part of that gap, because the holder of the shares collects whatever the companies pay before expiry. They cannot explain all of it. The July gap is smaller than June's, yet a longer window holds more dividends, not fewer. So something else is at work: the cost of arbitrage, which lets a gap stay open, and plain supply and demand for the future itself. An end of day file cannot split them.

To compare contracts with different days left, annualise the premium: premium over spot, scaled to a year. The June premium came to 1.98% a year and the July premium to 4.26%, against bill yields of 5.11% and 5.15%. Annualising turns points into a rate, so a premium of a few points over a few days and one of many points over many days can sit on one scale.

The premium also drifts away from interest as expiry nears. On Monday 29 Jun, with 1 day left, interest on the index came to only 3.3 points, yet the premium was 26.65, which is 23.4 above it. On Tuesday 30 Jun the final settlement price was the index close, so whatever premium was left had to go. Had the index closed flat on 30 Jun, a long future bought at the 29 Jun settlement of 23,972.90 would have lost the whole premium, Rs 1,732.25 a lot.

The payoff builder below opens on the Long future of 10 Jun 2026, June expiry. Switch the expiry to July as well. Take the index close off each future and check the premium rows of the table above.

The common mistake

The belief: The future trades above the index, so the market expects Nifty to rise. The formula already explains a premium with no view on direction: spot, interest, dividends. Its size did not line up with what came next either. On 10 Jun the June premium of 25.15 points sat well under the 65.0 points of interest, and the index rose 774.20 points in the next four sessions. On 29 Jun the premium of 26.65 points sat far over the 3.3 points of interest for one day, and the index closed lower on expiry day. A premium is set in advance by interest, dividends and the cost of arbitrage, and it melts on a schedule that the index does not control.

Key takeaways

  • The basis is the future less the index. A positive basis is a premium.
  • Future is roughly spot, plus interest on the spot, less dividends.
  • At expiry the final price is the index close, so the premium is zero.
  • A premium is set in advance. It is not a forecast of direction.
  • Dividends pull a future below its interest carry. Arbitrage costs let gaps stay open.
  • Annualise a premium to compare contracts with different days left.

2 terms this section turns on

2 terms this section turns on2 terms this section turns on. Basis: The future's price less the index, in points. When the future is higher the basis is called a premium. Arbitrage: Buying in one market and selling in another at once to lock in a gap, here the future against the index basket.BasisThe future's price less the index, in points.When the future is higher the basis is calleda premium.ArbitrageBuying in one market and selling in another atonce to lock in a gap, here the future againstthe index basket.
From the module glossary; every term is in the Learn glossary too. Source: Module 13.2, Why futures trade above spot: basis, carry and convergence.

Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study