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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives

In the Indian exchange-traded derivatives market, an equity index futures contract is settled at expiry in which manner?

Equity index futures in India are cash settled in rupees at expiry. An index cannot be delivered physically, so the gain or loss between the contract price and the final settlement price is paid in cash through the clearing corporation.

  1. ABy physical delivery of all constituent shares of the index
  2. BBy cash settlement in rupeesCorrect
  3. CBy delivery of a basket of index mutual fund units
  4. DBy compulsory rollover into the next month contract

Explanation

An index is not a tradable asset, so index futures and index options cannot be delivered physically. They are settled in cash, with the difference between the contract price and the final settlement price paid in rupees. The other options describe settlement methods that are not used for index derivatives.

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