Method Nifty 50 Arbitrage

NSE Indices Limited
(Formerly known as India Index Services & Products Limited-IISL)
NIFTY 50 Arbitrage Index-

Methodology Document
September 2019
Table of Contents
Introduction ........................................................................................................................................................................ 2
NIFTY 50 Arbitrage Index ............................................................................................................................................ 2
Index Calculation............................................................................................................................................................. 3
Index Governance: ......................................................................................................................................................... 4
About Us ............................................................................................................................................................................. 6
NIFTY 50 Arbitrage Index – Methodology Document, September 2019 1

Introduction
NSE Indices Limited (formerly known as India Index Services & Products Limited-
IISL) a NSE group company, was setup in May 1998 to provide a variety of indices
and index related services for the capital markets. NSE Indices Limited is India's
specialised company focused upon the index as a core product. NSE Indices Limited
maintains equity indices comprising broad-based benchmark indices, sectoral
indices, strategy indices, thematic indices, fixed income and customised indices.
Many investment and risk management products are developed on NSE Indices
Limited indices in India and abroad. The 'NIFTY 50' index is widely tracked and traded
as the benchmark for Indian Capital Markets.
NSE Indices Limited’s objective is to develop, construct and maintain indices on

Indian equities that serve as useful market performance benchmarks and can be
useful underlying indices for investment products
NSE Indices Limited has developed NIFTY 50 Arbitrage Index to measure the
performance of arbitrage strategy involving investment in equity and equivalent short
position equity futures, short-term debt market investments and cash.
NIFTY 50 Arbitrage Index
The methodology of NIFTY 50 Arbitrage Index is as under:
• Index is constructed representing strategy of long position in NIFTY 50 Price

Returns index and equivalent short position in NIFTY 50 index futures contracts
traded on NSE in equity and equity derivatives segment respectively
• The weights of the index constituents are as under:
o 65% weight is assigned to net returns from investment in long NIFTY 50
index and equivalent NIFTY 50 index short futures.
▪ A short position in near month futures contract is considered for
computation. The near month futures contract expires on last Thursday
of each month. Accordingly index will include mid-month contract from
the next trading day after the expiry of near month contract

▪ Close value of NIFTY 50 index and daily settlement price of NIFTY 50
futures contract is considered
o 30% weight is assigned to returns from 1 month MIBOR. The 1 month
MIBOR is considered to represent the short term investments.
o 5% weight is given to cash
• Dividends received on equity investment are expressed as dividend points index
and are considered for index calculation on the Ex-dividend date. Index dividend
points are dividends paid by index constituents expressed in terms of the level of
NIFTY 50 Index. The index dividend of the NIFTY 50 Index is calculated by taking
the summation of dividend pay-out (adjusted for free float) specified by index
constituents divided by the index divisor on ex-dividend date.
• The index is computed at end of the day using the close value of NIFTY 50 index
and daily settlement price of NIFTY 50 futures contract.
• Index has a base date of April 01, 2010 and base value of 1000.
Index Calculation
𝑵𝒊𝒇𝒕𝒚 𝟓𝟎 𝑨𝒓𝒃𝒊𝒕𝒓𝒂𝒈𝒆 𝑰𝒏𝒅𝒆𝒙 = 𝐼𝑛𝑑𝑒𝑥 𝑉𝑎𝑙𝑢𝑒 𝑡−1 𝑋 (1 + 𝑅𝑒𝑡𝑢𝑟𝑛𝑠𝑡 )
𝑹𝒆𝒕𝒖𝒓𝒏𝒔 = (𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑒𝑡𝑢𝑟𝑛𝑠 𝑋 65%) + (𝐷𝑒𝑏𝑡 𝑅𝑒𝑡𝑢𝑟𝑛𝑠 𝑋 30%) + (𝐶𝑎𝑠ℎ 𝑋 5%)
𝑬𝒒𝒖𝒊𝒕𝒚 𝑹𝒆𝒕𝒖𝒓𝒏𝒔 = 𝑁𝑖𝑓𝑡𝑦 50 𝑅𝑒𝑡𝑢𝑟𝑛𝑠 + 𝑆ℎ𝑜𝑟𝑡 𝑁𝑖𝑓𝑡𝑦 𝐹𝑢𝑡𝑢𝑟𝑒𝑠 𝑅𝑒𝑡𝑢𝑟𝑛𝑠
𝑁𝑖𝑓𝑡𝑦 50 𝐼𝑛𝑑𝑒𝑥 𝑉𝑎𝑙𝑢𝑒𝑡 + 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑜𝑖𝑛𝑡𝑠 𝐼𝑛𝑑𝑒𝑥𝑡

𝑵𝒊𝒇𝒕𝒚 𝟓𝟎 𝑹𝒆𝒕𝒖𝒓𝒏𝒔 = 𝐿𝑁 ( )
𝑁𝑖𝑓𝑡𝑦 50 𝐼𝑛𝑑𝑒𝑥 𝑉𝑎𝑙𝑢𝑒𝑡−1
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑜𝑛 𝐸𝑥−𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑑𝑎𝑡𝑒

𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝑷𝒐𝒊𝒏𝒕𝒔 𝑰𝒏𝒅𝒆𝒙 = ( )
𝐼𝑛𝑑𝑒𝑥 𝐷𝑖𝑣𝑖𝑠𝑜𝑟 𝑜𝑛 𝐸𝑥−𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑑𝑎𝑡𝑒
𝑁𝑖𝑓𝑡𝑦 50 𝐼𝑛𝑑𝑒𝑥 𝐹𝑢𝑡𝑢𝑟𝑒𝑠 𝑃𝑟𝑖𝑐𝑒𝑡

𝑵𝒊𝒇𝒕𝒚 𝟓𝟎 𝑺𝒉𝒐𝒓𝒕 𝑭𝒖𝒕𝒖𝒓𝒆𝒔 𝑹𝒆𝒕𝒖𝒓𝒏𝒔 = 𝐿𝑁 ( ) 𝑋−1
𝑁𝑖𝑓𝑡𝑦 50 𝐹𝑢𝑡𝑢𝑟𝑒𝑠 𝑃𝑟𝑖𝑐𝑒𝑡−1
1 𝑀𝑜𝑛𝑡ℎ 𝑀𝐼𝐵𝑂𝑅 𝑅𝑎𝑡𝑒𝑇−1

𝑫𝒆𝒃𝒕 𝑹𝒆𝒕𝒖𝒓𝒏𝒔 𝑻 = 𝑋 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠
365
Where T is the Trading Day

Index Governance:
A professional team at NSE Indices Limited manages the index. NSE Indices
Limited has constituted the Index Advisory Committee (Equity), which provides
guidance on macro issues pertaining to equity indices. The Index Maintenance Sub-
committee makes all decisions on additions and deletions of companies in equity
indices and Index Advisory Committee (Debt) provides guidance on macro issues
pertaining to fixed income indices. The Committees comprises of representatives
from financial market such as Asset Management Company, insurance company,
rating agency etc. In order to maintain transparency, the names of the committee
member are publicly displayed on the website. None of the member in the above
committee except the exchange representative(s) (who co-ordinates between the
Index Advisory Committee - Equity and IMSC) represent more than one committee
and thereby the independence of each of the committees is maintained.
Index Policy
The NIFTY indices uses transparent, researched and publicly documented rules for
index maintenance. These rules are applied regularly to manage changes to the
index. Index reviews are carried out semi-annually to ensure that each security in the
index fulfils eligibility criteria.
Announcements
All index-related announcements are posted on the websites of NSE Indices Limited
and NSE. Changes impacting the constituent list are also posted on the Web site.
Please refer to the www.niftyindices.com and www.nseindia.com.
Holiday Schedule
For the calculation of indices, the NSE Indices Limited follows the official holiday
schedule. A complete holiday schedule for the year is available on the NSE Indices
Limited and NSE website. Please refer to the www.niftyindices.com and
www.nseindia.com.
Index Precision
Index values are disseminated up to two decimal places.

Index Recalculations
All NIFTY family of indices are recalculated whenever errors occur. Users of the
NIFTY indices are notified through appropriate channel of communication.
Market Feedback & Index Methodology Review

NSE Indices Limited is committed to ensure that all NIFTY indices are relevant for
the market participants. In order to ensure this, NSE Indices Limited on an on-going
basis interacts with the stakeholders inviting the feedback through various channels
of communication. The feedback received from the market participants forms a key
input for all index related aspects.
Review of methodology of NIFTY indices is carried out on an annual basis.

Additionally, NSE Indices Limited also considers any feedback that it may receive
with regards to index methodology as part of on-going market interactions. Any
changes to the index methodology is approved by the Committee and the same is
announced through a press release.
Other
In case of a market stress or disruption, NSE Indices Limited will review and deal
with the situation on consultative basis with the National Stock Exchange of India
Ltd. (NSE) as NSE is source for price data for computation of equity indices.
All indices are expected to reflect the performance of a basket of stocks selected
based on the defined guidelines and theme. Every index user is advised to evaluate
the benefits of index and take an informed decision before using the index for self
or creation of index-linked products. NSE Indices Limited does not accept any
liability for any losses, claims, expenses etc. that may be incurred by any person as
a result of usage of NIFTY family of indices as a result of reliance of the ground
rules, any errors or inaccuracies.

About Us
About National Stock Exchange of India Limited (NSE):

National Stock Exchange of India Ltd. (NSE) is the leading stock exchange in India and the
second largest in the world by nos. of trades in equity shares from January to December 2018,
according to World Federation of Exchanges (WFE) report. NSE was the first exchange in India
to implement electronic or screen-based trading. It began operations in 1994 and is ranked as
the largest stock exchange in India in terms of total and average daily turnover for equity shares
every year since 1995, based on SEBI data. NSE has a fully-integrated business model
comprising exchange listings, trading services, clearing and settlement services, indices,
market data feeds, technology solutions and financial education offerings. NSE also oversees
compliance by trading and clearing members with the rules and regulations of the exchange.
NSE is a pioneer in technology and ensures the reliability and performance of its systems
through a culture of innovation and investment in technology. NSE believes that the scale and
breadth of its products and services, sustained leadership positions across multiple asset
classes in India and globally enable it to be highly reactive to market demands and changes
and deliver innovation in both trading and non-trading businesses to provide high-quality data
and services to market participants and clients.
For more information, please visit: www.nseindia.com
About NSE Indices Limited:
NSE Indices Limited (formerly known as India Index Services & Products Ltd. - IISL), a
subsidiary of NSE, provides a variety of indices and index related services for the capital
markets. The company focuses on the index as a core product. The company owns and
manages a portfolio of indices under the NIFTY brand of NSE, including the flagship index,
the NIFTY 50. NIFTY equity indices comprises of broad-based benchmark indices, sectoral
indices, strategy indices, thematic indices and customised indices. NSE Indices Limited
also maintains fixed income indices based on Government of India securities, corporate
bonds, money market instruments and hybrid indices. Many investment products based on
NIFTY indices have been developed within India and abroad. These include index based
derivatives traded on NSE, NSE IFSC and Singapore Exchange Ltd. (SGX) and a number
of index funds and exchange traded funds. The flagship 'NIFTY 50' index is widely tracked
and traded as the benchmark for Indian Capital Markets.
For more information, please visit: www.niftyindices.com
Contact Us
NSE Indices Limited

(Formerly known as India Index Services & Products Limited-IISL)
Exchange Plaza, Bandra Kurla Complex, Bandra (East),
Mumbai- 400 051, India.
Email: indices@nse.co.in
Tel: +91 22 26598386


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NSE Indices Limited

(Formerly known as India Index Services & Products Limited-IISL)

NIFTY 50 Arbitrage Index-

NIFTY 50 Arbitrage Index ............................................................................................................................................ 2

Index Governance: ......................................................................................................................................................... 4

NIFTY 50 Arbitrage Index – Methodology Document, September 2019 1

NSE Indices Limited’s objective is to develop, construct and maintain indices on

NIFTY 50 Arbitrage Index

The methodology of NIFTY 50 Arbitrage Index is as under:

• Index is constructed representing strategy of long position in NIFTY 50 Price

NIFTY 50 Arbitrage Index – Methodology Document, September 2019 2

𝑹𝒆𝒕𝒖𝒓𝒏𝒔 = (𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑒𝑡𝑢𝑟𝑛𝑠 𝑋 65%) + (𝐷𝑒𝑏𝑡 𝑅𝑒𝑡𝑢𝑟𝑛𝑠 𝑋 30%) + (𝐶𝑎𝑠ℎ 𝑋 5%)

𝑬𝒒𝒖𝒊𝒕𝒚 𝑹𝒆𝒕𝒖𝒓𝒏𝒔 = 𝑁𝑖𝑓𝑡𝑦 50 𝑅𝑒𝑡𝑢𝑟𝑛𝑠 + 𝑆ℎ𝑜𝑟𝑡 𝑁𝑖𝑓𝑡𝑦 𝐹𝑢𝑡𝑢𝑟𝑒𝑠 𝑅𝑒𝑡𝑢𝑟𝑛𝑠

𝑁𝑖𝑓𝑡𝑦 50 𝐼𝑛𝑑𝑒𝑥 𝑉𝑎𝑙𝑢𝑒𝑡 + 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑜𝑖𝑛𝑡𝑠 𝐼𝑛𝑑𝑒𝑥𝑡

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑜𝑛 𝐸𝑥−𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑑𝑎𝑡𝑒

𝑁𝑖𝑓𝑡𝑦 50 𝐼𝑛𝑑𝑒𝑥 𝐹𝑢𝑡𝑢𝑟𝑒𝑠 𝑃𝑟𝑖𝑐𝑒𝑡

1 𝑀𝑜𝑛𝑡ℎ 𝑀𝐼𝐵𝑂𝑅 𝑅𝑎𝑡𝑒𝑇−1

Where T is the Trading Day

NIFTY 50 Arbitrage Index – Methodology Document, September 2019 3

Index values are disseminated up to two decimal places.

NIFTY 50 Arbitrage Index – Methodology Document, September 2019 4

Market Feedback & Index Methodology Review

Review of methodology of NIFTY indices is carried out on an annual basis.

NIFTY 50 Arbitrage Index – Methodology Document, September 2019 5

About National Stock Exchange of India Limited (NSE):

For more information, please visit: www.nseindia.com

About NSE Indices Limited:

For more information, please visit: www.niftyindices.com

NSE Indices Limited

NIFTY 50 Arbitrage Index – Methodology Document, September 2019 6

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