--- title: "How do arbitrage funds work | RupeeCase" description: "An arbitrage fund buys shares in cash and sells futures on the same shares." source_url: "https://www.rupeecase.com/learn/questions/how-arbitrage-funds-work" --- The near month future traded above the index on almost nine sessions in ten from 1 January to 15 September 2026 Near month Nifty future over the index close, annualised as a simple percentage, before costs. Near expiry the figure swings because the number of days left is small. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026. Start with the basis: the near month future less the index close. The chart uses the Nifty future as a stand-in for the gap on one index, as an annualised percentage from 1 Jan 2026 to 15 Sep 2026. An arbitrage trade tries to capture that gap. A future usually trades above the index while it has time left, because it carries the cost of money until expiry, less the dividends the shares pay. If you buy the shares in cash, sell the future and hold both to expiry, the two prices meet, and the gap that remains is the return, before costs. The NSE Nifty 50 Arbitrage index shows the trade in its textbook form. It is built as 65% long the index and short the near month future, 30% in one month MIBOR and 5% in cash, with a base date of 1 Apr 2010. The return is not fixed. The basis was above zero on almost nine sessions in ten from 1 Jan to 15 Sep 2026, and it went negative on some of them. Near expiry the annualised figure swings, because the number of days left is small. Costs come off the gap: STT on a futures sale is 0.05% from 1 Apr 2026, and brokerage, fees and the spread come on each leg. A mutual fund adds its own expenses, its tax treatment and its rules, and this page does not cover them. It does not say whether any fund suits a person. The chart is data, not a forecast of the coming months. **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) How do arbitrage funds work?An arbitrage fund buys shares in cash and sells futures on the same shares, so the gap between the two prices is its main source of return, and the rest of its money sits in debt and cash. The gap is the basis, which was positive on most sessions from 1 Jan to 15 Sep 2026, but it can turn negative, so the return is not a fixed yield. LGo deeper ## Where Learn teaches this. [Go deeperCash futures arbitrage and the Nifty 50 Arbitrage index9 min, Intermediate](/learn/path-18/module-18-1-cash-futures-arbitrage)[Go deeperWhy futures trade above spot: basis, carry and convergence8 min, Beginner](/learn/path-13/module-13-2-futures-basis-and-carry)[Try itFutures fair valueCarry, dividends and the arbitrage band after costs.](/learn/tools/futures-fair-value) SSources ## Go to the source. 1. [NSE Indices, Nifty 50 Arbitrage strategy index](https://niftyindices.com/indices/equity/strategy-indices/nifty-50-arbitrage) NSE 2. [NSE Indices factsheet, Nifty 50 Arbitrage index (composition and base date)](https://archives.nseindia.com/content/indices/Factsheet_Nifty_50_Arbitrage_Index.pdf) NSE 3. [NSE, equity derivatives contract specifications (instruments, expiry, lot size and settlement)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE ?Questions people ask ## Related questions. [QuestionHow does cash futures arbitrage work, and what does it earn?Intermediate](/learn/questions/cash-futures-arbitrage)[QuestionIs arbitrage still possible, or legal, for retail in India?Intermediate](/learn/questions/arbitrage-for-retail-india)[QuestionWhat is cost of carry, and why is Nifty futures at a premium?Intermediate](/learn/questions/cost-of-carry-futures-premium)[QuestionIs a box spread in India "risk free"?Advanced, trap check](/learn/questions/is-box-spread-risk-free) [All 130 questions](/learn/questions/) Explore next ## Go deeper on this question. * [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder) * [GlossaryInvesting glossary, 230 termsPlain word definitions, and the app’s own](/learn/glossary) * [Free module 18.1Cash futures arbitrage and the Nifty 50 Arbitrage index9 min read](/learn/path-18/module-18-1-cash-futures-arbitrage) * [QuestionWhat is cost of carry, and why is Nifty futures at a premium?A short answer with a dated chart](/learn/questions/cost-of-carry-futures-premium) * [QuestionHow does cash futures arbitrage work, and what does it earn?A short answer with a dated chart](/learn/questions/cash-futures-arbitrage) * [Free module 13.2Why futures trade above spot: basis, carry and convergence8 min read](/learn/path-13/module-13-2-futures-basis-and-carry) Community ## Join my WhatsApp group. Scan the code, fillFill one short form, and join my WhatsApp group. Slides, sources, factsheets and the rebalance logs live there, and members join a daily Google Meet with me. New to RupeeCase? [Getting started](/getting-started) [See the terminal](/terminal) [Sign up for RupeeCase](https://invest.rupeecase.com/signup) [Join the WhatsApp group](https://forms.gle/C6HMtM1Z2GfeocQV7) [One form, one group](https://forms.gle/C6HMtM1Z2GfeocQV7)Scan with your phone camera 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.