New Delhi, Feb. 2 -- Budget 2026 increased transaction costs in the derivatives market by hiking the securities transaction tax (STT) on futures and options trades. While the increase is small in absolute terms, it has material implications for arbitrage funds, which depend on cash-futures spreads. The impact on other strategies is likely to be limited.

In her Budget speech on Sunday, finance minister Nirmala Sitharaman proposed a hike in STT: the tax for futures will rise from 0.02% to 0.05%, while the tax on options premiums and exercised options will increase to 0.15% (from 0.10% and 0.125%, respectively).

Arbitrage funds generate returns by buying shares in the cash market and selling futures to capture price differences. These posi...