Pledge Bonds & SGBs to Boost Trading Margin3 min read
In our previous blog (Margin Pledge: Your ROI Booster) we discussed the benefits of Margin Pledge and how margin pledge helps us increase our ROI.
Margin Pledge is a feature through which you can pledge your stocks to the broker in return for a collateral margin.
Paytm Money Margin Pledge allows you to pledge your Stocks, ETFs, Government Bonds, SGBs, etc. to get collateral margin. This collateral is received after deducting a certain percentage of value called ‘haircut’.
Treat Trading as a Business!!
To get success in trading, we need to treat Trading as a Business. Usually, successful traders expect 3%-4% return per month and a 20%–30% return yearly. To achieve this, they try to deploy their funds in the right place to get better returns.
Retail traders usually keep Cash Funds with brokers and trade. For their cash funds, they don’t get any return. At the end of the year, their total return depends on the return generated from trading.
How to maximize the return?
Most HNI traders invest their money in different instruments that give a fixed return and higher collateral. As we discussed in the previous post, the margin pledge system works with the 50:50 margin rule. It means 50% margin can be consumed from collateral and 50% margin needs to be paid from cash. As a trader, you should invest 50% of your funds in fixed income securities and pledge to get collateral margin. Lets understand with some examples
- Government Bonds: Government bonds provide approx. 6% interest (This may change from time to time). There is relevantly no risk, like in an equity stock investment. You invest 50% of funds in Government bonds and pledge to get up to 90% collateral margin for trading. Your total trading/investment returns will be boosted by the 7% returns earned from Government bonds.
- SGBs (Sovereign gold bonds): SGB’s give a fixed 2.5% return every year in addition to gold price appreciation. Gold historically acted as a natural hedge for equity, so some traders prefer to invest in SBGs and pledge collateral funds. You can invest 50% of your funds in SGBs, and that can fetch up to 90% collateral margin, which can be used for trading. Your total trading/investment returns will be boosted by 2.5% of SGB interest and gold value appreciation.
Follow the below steps in Paytm Money to transact SGB & Bonds:
- Login to Paytm Money App
- Go to Watchlist
- Type SGB or GOI and get the list of securities to transact.
Please note that there may be liquidity issues with Government bonds and SGB’s. You may not get the best price or buyers to offload your investments. So one should be very careful when choosing the right Government bonds and SGB’s. All government bonds and SGB’s may not be eligible for the margin pledge; before investing in Government bonds and SGBs, check the eligibility.
Listed here are the SGBs and government bonds that can be pledged through Paytm Money on Margin: Margin Pledge Allowed Stocks & Haircuts
Disclaimer: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. This content is purely for information purpose only and in no way to be considered as an advice or recommendation. Paytm Money Ltd SEBI Reg No. Broking – INZ000240532, Depository Participant – IN – DP – 416 – 2019, Depository Participant Number: CDSL – 12088800, NSE (90165), BSE (6707) Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019. For complete Terms & Conditions and Disclaimers visit: https://www.paytmmoney.com/stocks/policies/terms.
