The hike in STT (Securities Transaction Tax) on Futures and Options (F&O) will lead to lower returns in arbitrage mutual funds from the next year, warn experts, adding that these funds are the biggest
participants in the futures market.
In the Budget 2026-27, the government has proposed to hike STT on Futures and Options from April 01, 2026, aimed at curbing speculations in derivatives.
As per the new rules effective April 1, 2026, STT on equity futures has been increased to 0.05% from 0.02%, while equity options will now attract a uniform 0.15% STT on both buy and sell sides, up from 0.1% and 0.125% respectively.
In contrast, the government has left STT rates unchanged for equity delivery and intraday cash trades. Equity delivery transactions will continue to attract 0.1% STT, while intraday cash trades remain at 0.025%, offering relief to long-term investors and retail participants focused on the cash segment.
Following the hike in STT on F&O, trading in these segments will become costlier and less profitable for traders.
STT (Securities Transaction Tax) is a tax charged by the Indian government on the buying or selling of securities in the stock market. The tax is collected by the exchange and paid to the government, so investors don’t have to file it separately.
What Experts Say
Capitalmind AM founder Deepak Shenoy feared that the arbitrage fund returns will fall by 0.5 per cent next year due to increased STT.
An arbitrage fund is a mutual fund that earns low-risk returns by taking advantage of price differences of the same stock in the cash and futures markets—buying where it is cheaper and selling where it is costlier. The profit comes from this price gap, not from market direction, which makes arbitrage funds relatively stable.
Let’s understand with an example:
Suppose you trade Rs 10 lakh worth of Nifty futures.
Earlier STT (0.02%) = Rs 200
New STT (0.05%) = Rs 500
That’s Rs 300 extra per trade. For frequent traders doing multiple trades daily, this adds up and directly eats into profits.
Arbitrage funds use futures and options heavily, so higher STT reduces returns slightly.
