The new product has been designed to limit the price risk of their portfolios to the movement of the Sensex and also give them an additional tool to arbitrage on the differential between the cash and futures price of the market index.The product will enable investors to create a Sensex-linked portfolio and also to link market prices of the underlying securities of the Sensex in the cash segment and the futures on the Sensex.The contract value of a single lot under the basket trading system is determined by multiplying the index value in the cash market by a multiple of 50.The investment amount would be allocated to Sensex scrips, as per the choice of the investor and depending on the weightage of a particular scrip in the index. So, for a scrip having a 10 per cent weightage in the index an investor would get the number of shares available against 10 per cent of the investible funds at the prevailing market price.

It is not mandatory for an investor to invest in all the 30 Sensex scrips. The investment choice could be limited to less than the maximum permissible.For instance, when an investor is interested in 5 Sensex scrips having a combined weight of 60 per cent the relative weights of the 5 scrips in the Sensex is maintained by allocating the balance amount in the proportion of the Sensex weights of the five scrips in the basket.So for a basket comprising HLL, Infosys, Reliance Industries, Reliance Petroleum and ITC having Sensex weights of 18 per cent, 15 per cent, 12.5 per cent, 7.5 per cent and 7 per cent respectively, the revised weightages of HLL and the other four scrips would work out to 30 per cent, 25 per cent, 20.83 per cent, 12.5 per cent and 11.67 per cent respectively.

For investors wanting full representation and a replica of the Sensex underlying securities in their current weights, it would be possible to buy/sell the basket of 30 scrips at one go and thus book profits/losses in line with the percentage gains/losses registered by the index on a given day.Besides, the basket trading system would allow arbitrageurs to take advantage of price differentials in the underlying securities of the Sensex and futures on the Sensex by simultaneous buying/selling of baskets, covering the Sensex scrips and Sensex futures. This is not only expected to impart a balance of sorts on index levels in both the cash and futures markets but also boost volumes and increase depth of the two markets.