What is physical settlement?

Physical settlement means that when your futures or options (F&O) contract expires and you still have an open position, actual shares (the underlying asset) are either delivered to you or taken from you — depending on whether you were buying or selling.

For example, if you have a buy position at expiry, you’ll need to pay the full amount and the shares will be credited to your Demat account. On the other hand, if you have a sell position, you’ll have to deliver the shares from your holdings.

This is different from cash settlement, where no shares change hands — only the profit or loss amount is credited or debited in cash.