---
title: "Hedging a Mutual Fund Portfolio with Nifty: Beta, Basis"
description: "How a Nifty future hedges a fund on dated NSE data: estimating beta, the three parts of basis risk, and what a hedge left open in a fall and a rise."
source_url: "https://www.rupeecase.com/learn/path-17/module-17-15-hedging-mutual-fund-portfolios"
---

[Path 17 15 of 23](/learn/path-17/)Hedging mutual fund portfolios: beta and basis[Next 17.16](/learn/path-17/module-17-16-ratio-spreads-and-backspreads)

Take an assumed bank heavy fund worth Rs 50,00,000 on Monday 2 Feb 2026. Assume its [beta](/learn/glossary#beta) against Nifty is 1.10, so it carries Rs 55,00,000 of Nifty exposure. One March Nifty lot, at the future of 25,297.40, is worth Rs 16,44,331. The exposure is 3.34 lots, which rounds to 3. By Monday 30 Mar Nifty had fallen 11.0% and the three sold lots had earned Rs 5,78,370. The fund, which moved like the bank index, had lost Rs 7,11,685. The hedge worked and still left Rs 1,33,315 open. This lesson is about that gap: a beta that is an estimate, a fund that is not the index and a future that is not the spot. The fund is an assumption and the prices are dated NSE settlements, so this shows a method and is no hedge for any real holding. Nothing here is live.

3By the end you can

1. Size a Nifty future hedge for a fund from its value, its beta and the value of one lot.
2. Name the three parts of basis risk: fund against index, beta against the truth, future against spot.
3. Read what a hedge left open in a fall and in a rise, on dated NSE figures.

Watch in the terminal: what do index, fund and strategy lines show? A short tutorial on sample data.

## The idea, plainly

### How do I hedge a mutual fund portfolio?

The mechanics are those of any equity portfolio, in three steps. Find the fund's beta. Multiply the value of the units by it to get the exposure to Nifty. Divide by the value of one lot, and round. Sizing and the two instruments are taught in [hedging with futures](/learn/path-13/module-13-7-hedging-with-futures) and [hedging with Nifty puts](/learn/path-17/module-17-13-hedging-with-nifty-puts). What is new for a fund is the beta. A factsheet may print one, but against the fund's own benchmark and often on monthly returns, which need not fit a Nifty future, so it is estimated: regress the fund's daily returns from its [NAV](/learn/glossary#nav) on Nifty's daily returns over a window, and the slope is the beta. The same regression gives the [R squared](/learn/glossary#r-squared), the share of the fund's movement that the index explains. A large cap fund can show a high one. A sector or mid cap fund shows a lower one, and the rest of its movement is its own.

Read one more paragraph, 157 words
Three practical points set a fund apart from shares. Units sit in a fund account, so the hedge is a separate position in a trading account with its own [margin](/learn/path-12/module-12-5-fo-margins-explained), and the broker's collateral list says whether units count. A NAV is struck on the day's closing prices, while a future trades all day, so a hedge placed mid session is measured against a close it never saw. And the result on a future is business income, counted in the year the position is closed or expires, while the fund's gain or loss is a capital gain realised only when units are sold, so the two can fall in different years: see [tax treatment of funds and F&O](/learn/path-11/module-11-2-tax-treatment-mfs-etfs-sgbs-bonds-and-fno). A sold future against units already held is insurance on a holding. A short position with nothing held under it is a bet, and this lesson is not about that. RupeeCase's own [hedging page](/hedging) says the same.

### What is basis risk when hedging a fund with Nifty?

Basis is the gap between the thing hedged and the thing used to hedge it. Here it has three parts, and they add.

* **Fund against index.** The fund holds banks, or mid caps, or a theme, and Nifty holds fifty large stocks. The part of the fund's move that Nifty does not explain stays with the holder.

* **Beta against the truth.** Beta is a past slope. It drifts when the fund's holdings change, when the market moves from calm to stormy, and with the window chosen to measure it. A beta from a calm year can understate a fast fall, and the hedge is then too small just when it matters.

* **Future against spot.** On 2 Feb 2026 the March future stood 209.00 points above Nifty. That premium shrinks to nothing by expiry, so a seller of the future earns it: Rs 40,755 on three lots. See [why futures trade above spot](/learn/path-13/module-13-2-futures-basis-and-carry).

A Nifty hedge acts on the beta part of a fund only

Three gaps follow: the fund specific part, the rounding of lots and a beta that is only an estimate. The basis of the future closes by expiry and usually helps a seller. Source: RupeeCase illustration of a beta hedge on NSE contracts. As of 30 Jun 2026.

## Worked example: a bank heavy fund hedged with Nifty

The stand in for the fund is the bank index. It shares many stocks with Nifty, so it moves with it, and it is not Nifty. The chart shows both from 1 Jul 2025 to 15 Sep 2026, rebased to a common start. Their gap is the fund against index basis.

The bank index and Nifty moved together and still ended apart

Nifty 50 and the bank index, daily closes rebased to a common start. A fund tilted to banks sits somewhere on this gap, which a Nifty future cannot hedge. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026.

| Assumed fund | 2 Feb to 30 Mar 2026 | 10 to 30 Jun 2026 |
| --- | --- | --- |
| Nifty move | Down 11.0% | Up 2.8% |
| Bank index move | Down 14.2% | Up 4.4% |
| Sold Nifty lots | 3 | 4 |
| Hedge result | Gain Rs 5,78,370 | Loss Rs 1,62,669 |
| Net of fund and hedge | Loss Rs 1,33,315 | Gain Rs 58,981 |

| Fall, 2 Feb to 30 Mar 2026 | Rs lakh |
| --- | --- |
| Fund loss | 7.12 |
| Part beta explains: 1.10 times Nifty | 6.04 |
| Fund move beyond beta | 1.07 |
| Hedge gain, 3 lots | 5.78 |
| Beta part not offset (rounding, net of basis) | 0.26 |
| Left open after the hedge | 1.33 |

The hedge covered most of the fall and left a gap

Assumed Rs 50,00,000 fund moving with the bank index, 3 Nifty futures lots sold on 2 Feb 2026 and held to the 30 Mar expiry, before charges. Source: NSE end of day data, computed by RupeeCase. As of 30 Mar 2026.
The future's premium shrinks to near zero by expiry

Near month future less the Nifty close, in points, from the day the March contract became the near month. The seller of the future keeps the premium that closes, and it did not fall in a straight line. Source: NSE end of day data, computed by RupeeCase. As of 27 Mar 2026.
Read 5 more paragraphs, 385 words
The holder sells Nifty futures against the Rs 50,00,000 fund and holds them to expiry. The fund is assumed to move one for one with the bank index, which is a simplification. In the fall Nifty closed at 25,088.40 on 2 Feb and 22,331.40 on 30 Mar, and the bank index at 58,619.00 and 50,275.35. A lot was 65 units and the exposure of 3.34 lots rounded down to 3. In the rise, on 10 Jun 2026, the June future was 23,240.10 with 20 days to run, so a lot was worth Rs 15,10,607 and the exposure was 3.64 lots, which rounds to 4. Nifty closed at 23,214.95 that day and 23,865.75 on 30 Jun, and the bank index at 55,100.30 and 57,542.90.

In the fall the bank index fell further than Nifty did, so the fund lost more than beta times Nifty says. Where did the Rs 1,33,315 come from? The table splits it.

The larger part, Rs 1,07,282, is the fund specific move that no Nifty future covers. The smaller part, Rs 26,033, is the beta part left after whole lots, helped by the Rs 40,755 that the basis paid the seller. In the rise the gap worked for the holder: the fund gained Rs 2,21,650 and the hedge gave back Rs 1,62,669. A gap is not a loss. It is the part of the result the hedge does not control, in both directions.

A closer index shrinks the gap. In June, 3 lots of 30 units of the bank index future, sold at 55,200.40 against an exposure of 3.02 lots, would have left a net Rs 10,825 against the Rs 58,981 left by the Nifty hedge. That is a match by construction here, since the stand in is that index. A real fund is never so close, and every closer instrument has its own lot size and its own depth of trading. Charges come on top. The three sold lots in February paid STT of Rs 987 on the sale, at the rate then in force. From 1 Apr 2026 the rate on futures is 0.05%.

The basis itself is not fixed. The chart of the March future's premium over Nifty follows it to expiry week, and it did not shrink in a straight line.

## The common mistake

The belief: Nifty is the market, so a Nifty hedge covers any equity fund. Test it on the fall. The three lots offset most of the Rs 6,04,403 that beta times Nifty predicts, with Rs 26,033 left over. The bank heavy fund also fell Rs 1,07,282 more than that, because it is not an index of fifty large stocks. In the rise the hedge handed back Rs 1,62,669 of the fund's gain. A Nifty future hedges the index part of a fund and nothing else. Before sizing one, ask how much of the fund's movement the index explains, and how stable the beta has been. The answer sets how wide the gap will be.

## Key takeaways

* A fund's beta is a slope estimated from its returns against Nifty.
* R squared says how much of the fund the index explains.
* Fund against index, beta drift and future against spot make up the basis.
* The fund specific part of a move stays after any Nifty hedge.
* Whole lots always leave a sliver open.
* A hedge sits on units already held. It is not a view.

3 terms this section turns on

From the module glossary; every term is in the Learn glossary too. Source: Module 17.15, Hedging mutual fund portfolios: beta and basis.
**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](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html)

What does Hedging mutual fund portfolios: beta and basis cover?A fund is not the index. Beta sizes the hedge, basis decides what it leaves open, and the two windows show how much. It works through The idea, plainly, Worked example: a bank heavy fund hedged with Nifty, The common mistake, Key takeaways. It is module 17.15 of Path 17, Strategies and Hedging, about 9 minutes of reading, free.

TTry it

## Hedge calculator, on the same example.
Futures and put lots for a sample portfolio, and what the cover costs. Dated NSE end of day data, nothing live, no orders.

**Hedge calculator**, Nifty, 2 Feb 2026, 30 Mar 2026 expiry.

[Open the hedge calculator](/learn/tools/hedge-calculator?chain=NIFTY_2026-02-02_2026-03-30&preset=high-beta)

  AF&O on RupeeCase

## Hedging only, in development
F&O at RupeeCase will do one job: protect a portfolio you already own, by a rule published before it runs. No speculation, no naked option selling, no leveraged bets. It is not available yet.

  [How hedging will work](/hedging)[Sign up for RupeeCase](https://invest.rupeecase.com/signup)

  [No hedgeFalls with the marketWith a putA floor, for a premiumIllustration with made up numbers, not a product and not a recommendation.](/hedging)

QQuick check

## 10 questions, 7 to pass.
Each attempt draws 10 of the 15 questions in this module's bank, and a retake draws a fresh set. A pass gives this module's Certificate of Completion. Your result stays on this device and counts towards the Path 17 certificate.

7 of 10 correct passes module 17.15

Every answer is explained when you check; a retake is always free. Source: RupeeCase Learn quiz rules (70% to pass).

  Passed

###

  Certificate ID

Download PNGPrint or save as PDF[Check the ID](/learn/certificates/verify)
Self paced and unproctored. A record of completing free education by RupeeCase; not a NISM certificate and not endorsed by NISM, NSE, BSE or SEBI. It qualifies no one to deal, advise or publish research.

CCheck yourself

## Path 17 so far.
Your quick check results on this device, stop by stop.

Stop 15 of 23 on Path 17

Strategies and Hedging: every live stop, this module ringed. Source: RupeeCase Learn, Path 17.

1. [17.1Reading and building payoff diagramsNot yet](/learn/path-17/module-17-1-payoff-diagrams)
2. [17.2Vertical debit spreads: bull call and bear putNot yet](/learn/path-17/module-17-2-bull-call-and-bear-put-spreads)
3. [17.3Covered call, protective put and cash secured putNot yet](/learn/path-17/module-17-3-covered-call-and-protective-put)
4. [17.4Why and when to hedge: insurance in plain numbersNot yet](/learn/path-17/module-17-4-why-hedge)
5. [17.5Straddles and strangles, long and shortNot yet](/learn/path-17/module-17-5-straddles-and-strangles)
6. [17.6Credit spreads: bull put and bear callNot yet](/learn/path-17/module-17-6-credit-spreads)
7. [17.7Iron condor and iron fly on NiftyNot yet](/learn/path-17/module-17-7-iron-condor-and-iron-fly)
8. [17.8Butterflies and broken wing butterfliesNot yet](/learn/path-17/module-17-8-butterflies)
9. [17.9Option calendar spreadsNot yet](/learn/path-17/module-17-9-option-calendar-spreads)
10. [17.10Choosing a strategy by view: direction, volatility and timeNot yet](/learn/path-17/module-17-10-strategy-by-view)
11. [17.11Adjustments: what they really do to riskNot yet](/learn/path-17/module-17-11-option-adjustments)
12. [17.12Expiry day: gamma, theta, settlement and the rulesNot yet](/learn/path-17/module-17-12-expiry-day)
13. [17.13Hedging a stock portfolio with Nifty putsNot yet](/learn/path-17/module-17-13-hedging-with-nifty-puts)
14. [17.14Collars and put spreads as cheaper hedgesNot yet](/learn/path-17/module-17-14-collars-and-put-spreads)
15. [17.15Hedging mutual fund portfolios: beta and basisNot yet](/learn/path-17/module-17-15-hedging-mutual-fund-portfolios#quiz)
16. [17.16Ratio spreads and backspreadsNot yet](/learn/path-17/module-17-16-ratio-spreads-and-backspreads)
17. [17.17Diagonals and double calendarsNot yet](/learn/path-17/module-17-17-diagonals-and-double-calendars)
18. [17.18P&L attribution by GreeksNot yet](/learn/path-17/module-17-18-pnl-attribution-by-greeks)
19. [17.19Event hedging with event varianceNot yet](/learn/path-17/module-17-19-event-hedging)
20. [17.20Tail hedging and long dated Nifty optionsNot yet](/learn/path-17/module-17-20-tail-hedging)
21. [17.21Hedging an option selling book: wings, vega, gaps and margin stressNot yet](/learn/path-17/module-17-21-hedging-an-option-selling-book)
22. [17.22Kelly and sizing for option strategiesNot yet](/learn/path-17/module-17-22-kelly-sizing)
23. [17.23Risk for option books: scenarios, stress, VaR, ES and margin shocksNot yet](/learn/path-17/module-17-23-option-book-risk)
24. [TPath test, 30 questionsNot yet](/learn/path-17/module-17-23-option-book-risk#pathTestSection)

Path 17 in reading time: 215 minutes over 23 modules

Minutes of reading per module, this one in amber. Source: RupeeCase Learn, Path 17.

    Explore next

## Put the module to work.

* [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder)
* [Free module 17.4Why and when to hedge: insurance in plain numbers8 min read](/learn/path-17/module-17-4-why-hedge)
* [Free module 13.7Hedging with futures: beta, hedge ratio and lots9 min read](/learn/path-13/module-13-7-hedging-with-futures)
* [Free module 17.13Hedging a stock portfolio with Nifty puts9 min read](/learn/path-17/module-17-13-hedging-with-nifty-puts)
* [Free module 17.14Collars and put spreads as cheaper hedges9 min read](/learn/path-17/module-17-14-collars-and-put-spreads)
* [Free module 13.2Why futures trade above spot: basis, carry and convergence8 min read](/learn/path-13/module-13-2-futures-basis-and-carry)

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SSources

## Go to the source.
8 sources, NSE the most cited

The publisher of each source listed below. Source: Module 17.15 source list.
1. [NSE, equity derivatives contract specifications (lot sizes, expiries, cash settlement)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE
2. [NSE Indices, Nifty Bank index methodology and factsheet](https://www.niftyindices.com/indices/equity/sectoral-indices/nifty-bank) NSE
3. [NSE Clearing, margins: SPAN, initial margin and extreme loss margin](https://www.nseclearing.in/risk-management/equity-derivatives/margins) NSE
4. [NSE, securities transaction tax on equity derivatives](https://www.nseindia.com/static/products-services/equity-derivatives-securities-transaction-tax) NSE
5. [SEBI Investor, Understanding derivatives (hedging with derivatives)](https://investor.sebi.gov.in/understanding_derivatives.html) SEBI
6. [NISM, Series VIII Equity Derivatives, test objectives (hedging and beta)](https://www.nism.ac.in/revamp-nism/test-objectives-revised-nism-series-viii-equity-derivatives-certification-examination/) NISM
7. [Income Tax Department, e-filing portal: ITR forms (business income from F&O is reported in ITR-3)](https://www.incometax.gov.in/iec/foportal/) Income Tax
8. Hull, J., Options, Futures, and Other Derivatives, Pearson (hedging with index futures and beta) Book

GTerms

## 5 terms from this module.
[Beta](/learn/glossary#beta)The slope of a fund's returns against the index's returns, estimated from past data. A beta above one means the fund moved more than the index on average.
[R squared](/learn/glossary#r-squared)The share of a fund's variance explained by the index in a regression. The rest is the fund's own movement, which an index hedge does not cover.
Basis riskThe risk that the hedge and the thing hedged do not move together: the fund against the index, a beta that has drifted, and the future against the spot.
BasisThe price of a future less the spot price of its index. It narrows to zero at expiry.
[NAV](/learn/glossary#nav)Net asset value, the price of one unit of a fund, struck once a day on closing prices.
[All 230 terms in the glossary](/learn/glossary)

[Question people askHow do I hedge a mutual fund portfolio?A short answer with a dated chart](/learn/questions/hedge-mutual-fund-portfolio)[Question people askWhat is basis risk when hedging a stock or fund with Nifty?A short answer with a dated chart](/learn/questions/what-is-basis-risk)[Related module17.4 Why and when to hedge: insurance in plain numbers8 min, Beginner](/learn/path-17/module-17-4-why-hedge)[Related module13.7 Hedging with futures: beta, hedge ratio and lots9 min, Intermediate](/learn/path-13/module-13-7-hedging-with-futures)[Pillar guideDerivatives and Quant115 modules across paths 12 to 19](/learn/derivatives)

Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.