Index Futures
A futures contract whose underlying is a stock market index rather than a single security.
Formula
Contract Value = Index Level x Lot Size; settlement is in cash against the final index value
Unit
₹
In depth
Index futures give exposure to a whole market in one contract, which makes them the standard tool for hedging a diversified portfolio and for taking a view on the market rather than on a company. They are cash settled, so there is no delivery obligation at expiry and no risk of the funding surprise that single-stock contracts create. Hedging a portfolio with them leaves basis risk, because the portfolio's composition differs from the index and the two will not move identically. They are also the most liquid derivatives in India, which means the tightest spreads and the lowest impact cost in the segment.
Worked example
Hedging a ₹36,00,000 portfolio with a beta of 1.0 requires 36,00,000 / (24,000 x 75) = 2 Nifty lots sold. If the portfolio's beta is 1.3, the hedge needs 2 x 1.3 = about 2.6 lots, which must be rounded to whole contracts.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Index Futures” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.