ABSTRACT

The project titled as A STUDY ON HEDGING EFFECTIVENESS IN INDEX FUTURE has been done as a part of my MBA curriculum. This study finds out the effectiveness of derivatives (index future) as a risk reduction to the investors. For this study 5 companies are selected from different industries and constructed as efficient portfolio. The data are collected mainly from the secondary source. The period for the study is three months. As the share market is volatile i.e., changes may happen at any time, risk and uncertainty need to be minimized. Hence the present study seeks to reduce the risk and uncertainty.

The main conclusion that has been through this study is futures are beneficial to hedgers for transferring the risk components of their asset. This study proves that index future is a handy tool for aggressive risk management and can be helpful for all the parties related to the investment. Hedging does not remove losses, the best that can be achieved using hedging is the removal of unwanted exposure i.e., unnecessary risk.

If one wants to hedge with portfolio, the portfolio must consist of scrip from different sectors and here index futures are better for hedging, since they are convenient and represent the true nature of the security market as a whole. The hedger will have to be a strategic thinker and also one who thinks positively. He should be able to comprehend the market trend and fluctuation. Otherwise the strategies adopted by him will earn only losses.