How to avoid margin shortfall penalty2 min read

July 29, 2022
How to avoid margin shortfall penalty


How to avoid margin shortfall penalty2 min read

Heard of margin shortfall penalty? No? Don’t worry, we’ll explain and tell you exactly how to avoid it.

Trading and investing can involve some small charges and updates that can be difficult to understand. But don’t worry, because we’re here to break it down and simplify it for you.

Due to a recent circular by SEBI, we are now required to send real-time updates to the ICCL (Indian Clearing Corporation) about the funds in your account.

When you initiate a delivery transaction, 20% of the total sell amount in your account is blocked as margin. This amount will be available for new investments only the next day.

Until then, this means you can use only 80% of the sell amount available if you wish to invest immediately.

If there’s a margin shortfall due to insufficient funds in your account, you will be charged a penalty of 1%.

So how can you avoid the penalty?

Keeping the required funds in your trading account will save you from paying a penalty. Once we report the Early Pay-In to the ICCL, you will not be penalized.

We currently charge a flat depository participant (DP) charge of Rs 13.5 per delivery sell trade; which means, you are charged only Rs 13.5 regardless of whether you choose to sell your holdings in batches (in a day) or at one go (in a day).

You can check details about our brokerage here.

Let’s take a look at an example.

Say you own Rs 5 lakh worth of Reliance Industries’ shares. You sell all the shares in 10 equal quantities of Rs 50,000 lakh each, in 10 delivery sell transactions. You will need to keep at least 20% of the total sell amount as margin. This means, you would need to have Rs 1 lakh in your trading account by the end of a trading day.

If your account has sufficient funds, you will pay only Rs 135, since you’ve avoided the penalty. Once we report your transactions to the CDSL, the exchange will not place a penalty on you. If your account does not have the required margin, you will be charged a penalty of Rs 1,000, which is 1% of Rs 1 lakh.

This means you save a total of Rs 875!

Since delivery sell orders are delivered to exchange as soon as they are executed, it mitigates the risk of non-delivery to exchange. Hence, the margin requirements in such a process becomes zero.

So do ensure that you keep sufficient funds in your account to avoid paying extra!