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What Is MTF Pledge? Process, Features & Benefits

What Is MTF Pledge? Process, Features & Benefits

With the MTF Pledge, traders can utilise their investments for more trading opportunities. In some cases, you might wish to trade more but lack the funds. Using MTF Pledge, you can increase your trading power using the valuable items in your account. MTF pledge meaning refers to borrowing a bit of extra money to make the most of trading opportunities.

By using MTF Pledge, you can take advantage of opportunities even if you don't have a lot of money on hand. It allows you to trade more and potentially make more money. This article will explain the MTF Pledge, its process, benefits, features and interest rate.

MTF Pledge vs. Margin Pledge

Margin is the security or specific amount a trader deposits with a broker before executing a trade. SEBI (Securities and Exchange Board of India) determines the margin amount. The concept of margin pledge refers to using the securities in your Demat account to gain additional margin. Your securities are the ones you currently have in your account. Moreover, when applying for a loan, these can be pledged as collateral.

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Table of Content

  1. MTF Pledge vs. Margin Pledge
  2. What Is The MTF Pledge Process?
  3. Features & Benefits Of Margin Trading Facility
  4. What Is The Method Of Calculating The Interest Rate For My MTF?
  5. Conclusion

What Is The MTF Pledge Process?

After you execute a trade under MTF, follow these steps to complete the MTF pledge request.

  • NSDL/CDSL send an MTF Pledge request link to the registered mobile number and email address.
  • Upon clicking the link, you will be directed to CDSL's website.
  • Authenticate your pledge by entering your Demat account number or PAN card number.
  • In the margin trading account of your broker, you will see a list of securities and the quantity to pledge.
  • Choose the stocks you want to pledge and click the Generate OTP button.
  • CDSL/NSDL will send an OTP to your registered email address and mobile number.
  • To complete authorisation and the MTF Pledge request, enter the OTP.
  • To avoid conflicts, wait for the success message.

MTF Pledging charges Rs 20/- plus GST per Scrip when you pledge shares or unpledge your shares. When shares are sold or squared off, you will also be subject to Unpledge charges automatically.

Features & Benefits Of Margin Trading Facility

Features of Margin Trading Facility

  • Using margin trading allows investors to leverage their positions in securities that are not derivatives.
  • Only authorised brokers are permitted to offer margin trade accounts under SEBI regulations.
  • SEBI and the respective stock exchanges define securities that can be margin traded.
  • Stocks and cash can be used as collateral for margin positions.
  • It is possible to carry forward margin created positions up to a maximum of N+T days, where N is the number of trading days, and T is the number of days the position can be carried forward.
  • To use the MTF, investors should open an account with their brokers by accepting the terms and conditions that state they understand the risks and benefits.

Benefits of Margin Trading Facility

  • Investors who don't have enough cash in hand can take advantage of margin trading to encash price fluctuations over the short term.
  • Portfolio or demat account securities can be used as collateral/security.
  • An MTF pledge increases the rate of return on investment.
  • The MTF pledge enhances the purchasing power of investors.
  • Securities and Exchange Board of India and stock exchanges monitor margin trades continuously.

What Is The Method Of Calculating The Interest Rate For My MTF?

MTF interest rates are only broadly fixed. However, you may be able to negotiate for better rates depending on your relationship with the broker. The calculation of the margin can vary, so if you are unsure after reading their website, speak with your broker directly.

Interest is calculated by multiplying the annualised interest rate by the amount borrowed. After that, the output is multiplied by the loan term. Thus, if you avail of the margin funding facility for 25 days, multiply the figure by 25/365 to get the payable interest.

Formula: Interest payable = (Rate/365) x principal x time

Rate- The annual interest rate agreed upon for the loan

Principal- The amount borrowed or the amount deducted from the margin account

Term- The number of borrowing days divided by 365 to make it annual

It is important to remember that this is a very general approach and is not all-inclusive. For a proper understanding of margin funding, you need to talk with your broker or read the fine print of your agreement.

Conclusion

An MTF Pledge is a method of obtaining extra margin for trading by using the securities in your Demat account as collateral. Margin Trading Facility offers numerous benefits, including the ability to leverage non-derivative securities, to use stocks as collateral, and to potentially increase returns. Those interested in exploring the benefits of the MTF Pledge and margin trading should talk to their broker openly. New traders can explore the BlinkX trading app, which is user-friendly and suitable for beginners.

FAQs on MTF Pledge

MTF, in trading, offers buyers of shares and securities the opportunity to purchase securities worth more than they can afford to pay in cash.

Yes, MTF is safe. The reason is that only SEBI-registered brokers, who are subject to provide extra cash for your trade.

You can hold your shares as long as you maintain the required margin.

MTF Pledge involves two types of brokerage charges. The first is the MTF pledge charge, and the second is the pledge closure charge. There is a charge of Rs. 25 per MTF pledge request (under the lifetime AMC plan) and Rs. 32 per MTF pledge request (under the quarterly AMC plan).

Margin trading facilities are powerful tools that can help you maximise your trading potential. Through this feature, you can take larger positions in the market than your account balance normally allows. This results in potential profits being higher.