The gap between the near Nifty future and the index changes from session to session, so a hedge carries a different basis on each day
A hedge works when the gain on the hedge offsets the loss on the holding. Basis risk is the part that does not offset. It has two sources. The first is the basis, the future price minus the index value. The second is the tracking gap, the difference between the holding and the index.
The basis is the visible one. The near month future sat above the index on most sessions in the record, and the gap moves with interest, dividends and demand for the future. A futures hedge lifted before expiry carries the basis as it stands on that day, not the basis that was there when the hedge was placed. The chart shows the gap in points, day by day.
The tracking gap is usually larger for a stock basket or a fund holding stocks outside the index. Beta, the slope of the holding against the index, sets the hedge ratio. The fit around that slope is the part no ratio removes, and the error grows as the holding drifts from the index. The hedge calculator lets you change the beta and see the error table for each case.
Basis risk is not a reason to skip hedging. It is the reason a hedge leaves a residual exposure, and the residual is the number to check before the hedge is put on.
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