Margin Trading Facility (MTF) allows traders to buy stocks by paying only a portion of the total trade value. The remaining amount is funded by the broker. This feature boosts buying power by up to 4x, helps capture opportunities quickly and makes it easier to trade without adding fresh cash.
- Major Cost Heads in MTF
- 1. Interest on Funded Amount
- 2. Brokerage Charges (Buy and Sell)
- 3. DP Charges and Pledge / Unpledge Fees
- 4. Other Order-Level Charges in MTF Trades
- 5. Indirect or Conditional Costs
- Sample MTF Cost Calculation
- Paytm Money’s MTF Calculator
- How to Reduce MTF Costs and Improve Net Returns
- FAQs
However, MTF comes with costs. These charges can directly impact the profitability of your trade, especially when positions are held longer than expected. To succeed with MTF, every trader must understand the total cost involved: interest on the funded amount, brokerage on buy and sell, depository (DP) charges, pledge and unpledge fees, and indirect or conditional costs. Not knowing the full cost structure can turn what appears to be a winning trade into a net loss.
Major Cost Heads in MTF
1. Interest on Funded Amount
This is the primary cost in MTF. When the broker funds a portion of your trade, interest is charged on that funded amount for every day the position remains open.
Key points:
- Interest is charged daily, not monthly.
- Interest is calculated on the broker-funded amount, not on the total trade value.
- The longer the holding period, the higher the cumulative interest.
Example:
If a broker funds Rs 1,00,000 at 12% per year, the daily interest is approximately:
₹1,00,000 × 12% / 365 = ₹32.87 per day
Paytm Money offers MTF at low rates, starting at 7.99%. Check the pricing page for more.
2. Brokerage Charges (Buy and Sell)
Brokerage is charged on both the buy and sell side of the transaction.
Brokerage applies whether you:
- Square off within the day
- Hold the position for multiple days
Paytm Money charges brokerage at 0.1% of trade value or the current standard brokerage, whichever is higher.
3. DP Charges and Pledge / Unpledge Fees
To obtain margin through MTF, stocks need to be pledged as collateral. That process is chargeable. If you later wish to sell the pledged holdings, unpledging is required, which may also be chargeable.
Paytm Money charges:
- Pledge fees: ₹20/- per Transaction (including ₹5 CDSL charges)
- Unpledge fees: ₹20/- per Transaction (including ₹5 CDSL charges)
- DP charges: ₹20, including CDSL DP charges of 3.50 for debit transaction
Frequent pledging across multiple ISINs can increase these charges over time.
4. Other Order-Level Charges in MTF Trades
Every MTF order also includes standard statutory and exchange charges that apply to all equity trades, whether you use MTF or regular delivery. These include Exchange Turnover Charges, SEBI Turnover Fees, Stamp Duty on buy orders, STT on buy and sell orders, and GST on brokerage and exchange fees. These charges are not unique to MTF, but they add to your total cost and should be considered when calculating the break-even point of any MTF trade. To know more about these charges, visit our pricing page.
5. Indirect or Conditional Costs
Not all costs show up on your contract note, but they can still eat into your profits. You don’t always have to pay these—they only pop up in specific situations, like when you use a Margin Pledge for extra funding
Important factors:
- Margin calls if collateral value drops, requiring additional cash
- Haircuts that reduce effective collateral value and increase the need for cash, when using Margin Pledge
- Delayed exit leading to extra days of interest
These indirect costs matter just as much as visible charges and should be considered before using MTF.
Sample MTF Cost Calculation
Assume the following trade:
- Total trade value: Rs 100,000
- Margin paid by trader: Rs 25,000 (25%)
- Broker funds: Rs 75,000
- Example Interest rate: 12% per year
- Paytm Money Interest rate: 7.99% per year
- Position held for: 100 days
Example Cost breakdown:
- Interest:
75,000 × 12% / 365 ≈ Rs 24.66 per day
For 100 days: approximately Rs 2466 - Brokerage:
0.1% on buy = Rs 100
0.1% on sell = Rs 100
Total brokerage = Rs 200 + GST - Pledge fee:
Rs 20 + GST ≈ Rs 24
Total MTF cost for 100 days ≈ Rs 2690
This means the stock must generate more than Rs 2690 (~2.7%) in gains just to break even.
Paytm Money MTF Cost breakdown:
- Interest:
75,000 × 7.99% / 365 ≈ Rs 16.42 per day
For 100 days: approximately Rs 1642 - Brokerage:
0.1% on buy = Rs 100
0.1% on sell = Rs 100
Total brokerage = Rs 200 + GST - Pledge fee:
Rs 20 + GST ≈ Rs 24
Total MTF cost for 100 days with Paytm Money ≈ Rs (1866~1.9%)
This means the stock must generate more than Rs 1866 in gains just to break even. Only profits exceeding that amount become actual net gain for the trader.
With Paytm Money’s MTF rates starting at 7.99%, the trader can save costs, thus making break-even more achievable.
Paytm Money’s MTF Calculator
To make cost planning easier, Paytm Money offers an MTF Calculator that helps traders visualise the exact total cost of an MTF trade before placing it. Instead of manually estimating daily interest, brokerage, DP fees, and pledge charges, the calculator shows a clear breakdown based on trade value, holding days, and applicable interest rate.
How to Reduce MTF Costs and Improve Net Returns
The objective in MTF trading is not to eliminate charges, but to manage them effectively so that net returns remain strong.
Practical strategies include:
- Choose brokers with lower MTF interest rates: Interest is the largest cost component. A reduction from 12% to 7.99% (on Paytm Money) can significantly improve profitability.
- Reduce the holding duration of trades: MTF is best used for short- and medium-term setups. Longer holding periods significantly increase interest and can make profitable trades unviable.
- Use high-quality collateral stocks: Stocks with lower volatility reduce the chance of margin calls and haircut adjustments.
- Track margin status daily: Monitoring prevents forced square-offs, penalties, and unwanted exits due to volatility.
- Consolidate pledges when possible: Fewer ISINs pledged results in lower pledge and un-pledge costs over time.
These steps help traders manage risk and avoid unexpected debits that can damage confidence and capital.
For new investors who are building confidence in the markets, transparency of charges is especially important. MTF uses borrowed funds, so a disciplined approach makes the experience predictable and more rewarding.
Paytm Money helps traders by offering upfront visibility of MTF charges and tools like an MTF Cost Calculator. This allows users to estimate the total cost before taking a trade and compare plans easily.
Disclaimer: Investment in securities market is subject to market risks. Read all the related documents carefully before investing. This content is purely for information purpose only and in no way is to be considered as an advice or recommendation. The securities are quoted as an example and not as a recommendation. Investors are requested to do their own due diligence before investing.
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