A put on the index gains as Nifty falls, and it does not pay for losses that the index does not explain
| Move in the future | 10 days after the example date, rupees | ||
|---|---|---|---|
| IV −3 | IV same | IV +3 | |
| −4% | +33,088 | +34,103 | +35,540 |
| −2% | +7,306 | +9,858 | +12,535 |
| 0% | −8,731 | −5,949 | −3,105 |
| +2% | −14,438 | −13,060 | −11,279 |
| +4% | −15,460 | −15,127 | −14,445 |
Green is profit and red is loss; deeper colour means a larger amount. The outlined cell is the starting point.
Start by asking what the fund holds. A large cap fund that tracks Nifty closely has most of its risk in the index, while a sector or mid cap fund carries a different mix. The hedge is sized to the index part only, so the first step is to estimate beta against the index over a dated window.
Beta is the slope of the fund's returns against Nifty's returns. A beta near one means the fund moved with the index, and a higher beta means it moved more. State the window, use daily returns, and check the dates, since fund NAVs and index closes can be dated differently.
The hedge is the fund's value times beta, divided by the value of one Nifty lot, the same arithmetic as for a stock portfolio. The chart shows the index part of the hedge: a put on the index pays as the index falls, so a fund that tracks the index loses less. It says nothing about the fund's own moves.
The basis is the risk left over: the fund's return minus beta times Nifty's return. It carries stock selection, cash held, costs and timing. It can be large in a sector or mid cap fund, and it does not diversify away when the index falls.
Costs and rolls matter. A put bought each month pays time decay each time, and a futures hedge pays a roll each month and margin while it is open. The figures on this page come from dated NSE chains, and the hedge calculator shows the lot count, the premium and the basis error.
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