Here’s how it works:

1. Buyer’s Responsibility (Taking Delivery): If you have purchased a stock futures contract and have not closed your position before the contract expires, you will be obligated to take possession of the actual shares associated with the contract.
   
2. Seller’s Responsibility (Giving Delivery): Conversely, if you have sold a stock futures contract and have not closed your position before expiry, you will be required to deliver the corresponding shares to the buyer.
   
3. Settlement Process: Once the contract expires, the transaction is settled by physically transferring the shares—credited to the buyer’s Demat account and debited from the seller’s Demat account.
   

Important Considerations:

1. Applies to Stock Derivatives Only: Physical settlement is specific to stock-related derivatives (such as futures and options), and does not apply to index options, which are typically settled in cash.
   
2. Mandatory Action: If you hold an open position in a stock futures or options contract that is in-the-money (ITM) as it reaches expiration and you have not closed the position, you are legally required to settle the contract physically.
   
3. Margin Requirements: You must ensure that you have sufficient margin in your account to cover the total value of the shares you are either taking delivery of or required to deliver.
   
4. Settlement Price: The price used to determine the value of the shares delivered is the closing price of the underlying stock on the expiration date.
   

1. Example: Suppose you buy a stock futures contract for 100 shares of Reliance Industries. If the contract expires without being closed, you will be required to take delivery of 100 Reliance Industries shares, which will be transferred into your Demat account.