Trade Without Adding Fresh Funds: Margin Pledge & MTF Explained

If you already hold stocks in your demat account, you don’t always need fresh cash to trade new stocks. Thanks to the combination of margin pledge and the margin trading facility (MTF), you can use your existing holdings as collateral and trade without bringing in fresh funds. 

What Is Margin Pledge?

Margin Pledge allows you to pledge eligible stocks or securities in your demat account and use them as collateral to get funds for trading.

• Your pledged securities remain in your portfolio, but are marked as pledged.
• The broker credits money in your trading account against this pledged stock. This money is known as the collateral margin, and the broker also applies a haircut to this amount. Think of a haircut as a discount on the value of the investment.  It works like trading funds that can be used to place trades but you cannot withdraw it.
  

Example:
If you hold ₹1,00,000 worth of eligible stocks, with an applicable haircut of 20%, you will receive a collateral margin of ₹80,000 that can be used for new trades.

What Is MTF (Margin Trading Facility)?

MTF lets you buy stocks by paying only a portion of the total value. The broker funds the rest and you  pay interest only on the borrowed amount. 

Example:
To buy stocks worth ₹4,00,000:

• You pay ₹1,00,000
• Broker funds ₹3,00,000 (at applicable rates)
• Stocks bought under MTF may need to be pledged.

On Paytm Money, MTF stocks are auto-pledged, making the experience seamless for users. Paytm Money’s MTF interest rates begin at 7.99%* p.a. Check the pricing page for more.

How Cashless Trading Works (Margin Pledge + MTF)

Let us understand with an example. Imagine you’re considering buying Reliance shares using “Cashless” MTF.

You have ₹1,00,000 worth of HDFC Bank shares sitting in your portfolio, but no liquid cash.

Step 1: Pledging Existing Holdings

You initiate a Margin Pledge on your HDFC Bank shares.

• The Haircut: The exchange applies a “haircut” (safety buffer). If the haircut is 20%, your ₹1,00,000 worth of shares unlocks ₹80,000 in collateral margin.
• The Balance: Your Paytm Money balance now shows ₹80,000 available for trading. This is your collateral margin.

Step 2: Buying New Stocks via MTF

You decide to buy ₹1,00,000 worth of Reliance shares using MTF.

• The MTF Requirement: Usually, for MTF, you need to provide a 25% “Initial Margin” (your contribution).
• Calculating your part: 25% of ₹1,00,000 = ₹25,000.
• The Execution: Instead of paying ₹25,000 in cash, the system uses ₹25,000 from your HDFC collateral margin. Paytm Money funds the remaining ₹75,000.

Step 3: The Result

Step 4: Maintenance & Interest

• Interest: You will pay interest (at 7.99% p.a.) only on the ₹1,00,000 funded by Paytm Money
• Monitoring: If HDFC Bank (your collateral) or Reliance (your new buy) drops significantly in price, you might be asked to add funds to maintain the required margin cover.

How to Do Cashless Trading via Paytm Money 

• Open the Paytm Money app and tap on “Portfolio.”
• Ensure your demat holds eligible stocks for pledging.
• Tap on “Margin Pledge”. Select the stocks, enter the quantity, and submit the pledge after OTP verification.
• Once collateral is credited, switch to MTF mode when placing a new buy order.
• Monitor your margin, pledged value, and interest costs daily.

(Note: Request goes to the depository, and may take T+1 day to clear.)

Benefits of Using Margin Pledge with MTF

• Lower fresh cash requirement: Trade without adding money if you already own stocks
• Maintain your existing holdings: You don’t have to sell your stocks to free up cash.
• Better capital deployment: You can reinvest your available cash elsewhere, while still buying via MTF.

Risks of Using Margin Pledge with MTF

• Pledged stock value can fall: If your pledged holdings drop in value, margin cover falls. This means you’ll face a margin call or auto‐square‐off.
• Interest costs: The MTF‐funded part attracts interest. This MTF interest may reduce profits if the holding period is too long.
• Haircut on pledged securities: Not all holdings are treated equally; some stocks may give lower collateral value.

Smart Rules to Manage Risk

• Only pledge a part of your portfolio: Keep some non-pledged holdings for safety.
• Use MTF on stocks you’d hold anyway: Don’t pick speculative ones only because you have extra buying power.
• Set alerts for pledged value drop/margin call thresholds. Paytm Money alerts you via SMS in the event of a margin call.
• Pay off the funded portion as soon as possible to reduce the interest burden.

Conclusion

In short, Cashless trading via margin pledge and MTF gives you an extra dimension of flexibility. You are leveraging your own holdings smartly, not just borrowing blindly. But as with all leverage, prudence, monitoring and control matter. On Paytm Money, you can now explore this setup and make your capital work harder, while being aware of the risks, costs and rules.

Disclaimer: Investment in the 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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