--- title: "What is basis risk when hedging a stock or fund with Nifty?" description: "Basis risk is the chance that a hedge and the holding it covers do not move together, so the hedge gains or loses what the holding does not." source_url: "https://www.rupeecase.com/learn/questions/what-is-basis-risk" --- 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 Near month Nifty future less the index close, in points, daily, from 1 Jul 2025 to 15 Sep 2026. Below the zero line means the future closed under the index. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026. 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](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 is basis risk when hedging a stock or fund with Nifty?Basis risk is the chance that a hedge and the holding it covers do not move together, so the hedge gains or loses what the holding does not. In India it comes from two gaps: the Nifty future trades away from the index until expiry, and a stock or fund does not follow the Nifty one for one. LGo deeper ## Where Learn teaches this. [Go deeperHedging with futures: beta, hedge ratio and lots9 min, Intermediate](/learn/path-13/module-13-7-hedging-with-futures)[Go deeperHedging mutual fund portfolios: beta and basis9 min, Intermediate](/learn/path-17/module-17-15-hedging-mutual-fund-portfolios)[Try itHedge calculatorFutures and put lots for a sample portfolio, and what the cover costs.](/learn/tools/hedge-calculator) SSources ## Go to the source. 2 sources, NISM the most cited The publisher of each source listed below. Source: Module undefined source list. 1. [NSE, equity derivatives contract specifications (expiry, settlement, exercise and lot size rules)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE 2. [NISM, Series VIII equity derivatives test objectives](https://www.nism.ac.in/revamp-nism/test-objectives-revised-nism-series-viii-equity-derivatives-certification-examination/) NISM ?Questions people ask ## Related questions. 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