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Margin Against Shares in Demat Account - How it works?

Posted on Wednesday, February 18, 2015

Modified on Wednesday, July 22, 2015

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Margin Against Shares in Demat Account - How it works?

Margin against share is a value-added service provided by the share brokers in India. This service offers client to use shares in their demat account to get the margin funding needed for trade.

Note that not all share brokers offer margin against shares.

Also known as Collateral Margins, Margin against share is available for different trading segments and depend upon the broker.

Note that with most brokers, margin against share doesn't cover 100% of the margin customer need for trading. Brokers has the "Cash-Collateral proportion" which client has to maintain. Most brokers has Cash-Collateral proportion in the ratio of 10:90, which means customer still have to keep 10% in cash for margin.

In F&O segment; for Mark to Market losses, customer need to have cash margin. Fail to provide the cash margin leads to sell of the stocks he kept for margin to settle the obligation.

Why do I need margin against securities / stock / shares?

Margin against share is the service provided by brokers to its customers for free. This facility is for customers who hold shares in their demat account for long term investment. Customer could use these idle shares as asset (similar to cash) so that broker could give margin against such assets for the client to trade.

In simple words instead of using cash, customers could use shares and get margin needed for trading with the share broker.

Here are few more benefits of using shares as margin for trading:

  • T+2 days to arrange funds while buying stocks
  • Make most of Indra-day Market volatility and trade in Margin, Futures and Options
  • No Interest charged on limits

How does collateral margin works?

Broker gives margin to its customers for the securities held by the client in their demat account. Here are the steps about how collateral margin works:

  1. Shares are first transferred by clients from his personal demat account to brokers beneficiary account through an off-market transfer.
  2. These shares are moved to the clients margin account hold by the broker's preferred DP (i.e. in case of Zerodha it's the IL&FS margin account).
  3. Broker calculates the margin amount based on the share your transferred. Most broker's uses exchange prescribed haircut for calculating margin against those shares. The calculation is explained below in one of the faq.
  4. Client uses this margin for trading.
  5. If clients doesn't want these shares to be hold by the broker for margin against share; they can contact broker to transfer the shares back to their demat account.

Are there any additional charges for using margin against shares?

Usually brokers do not charge anything as such for using the facility of margin against share.

But there is a cost involve for off-market transfer for shares between clients account to broker's beneficiary account. These charges depend on your DP and also on your broker. i.e. Zerodha charges Rs 60 for transferring shares back to clients account for ISIN number.

Once I transfer the shares to broker for margin against share, do I still get the dividend payouts?

The client remain the owner of the share at all time, even after transferring the shares to broker for collateral margin. This the clients receive all the benefits including dividend, bonus shares, voting rights etc.

How the margin being calculated for shares client transferred to broker for margin funding?

When the shares are transferred to the broker, client gets margin against those shares after the exchange prescribed haircut.

Say for an example, if client has transferred shares worth Rs 1 lakh and if the exchange prescribed haircut is 15%, then the collateral value of the shares will be Rs 85,000.

The Cash-Collateral proportion in clients account for the position held by the client will always be calculated in the ratio of 10-90. Accordingly, to utilize the entire Rs85,000 collateral benefit client will need to have a minimum cash margin of Rs.9444 (Rs 85000 * 10/90).

Brokers who offers margin against shares:

Many brokers in India offers margin against share facility. Here are some of them:

  1. Zerodha

    Zerodha, India's leading discount brokers offers collateral margin or margin against share for trading in Equity F&O segment.This facility is not available for any other trading segments.

  2. ICICI Direct

    India's largest broker ICICI Securities is offering this service to its customers since Jan 2012. ICICI customers can use shares in their demat account as margin for equity trading.

    This facility allows its customers to use idle equity shares in demat account to buy stocks and bring funds by T+2 days. Customers can put to use their existing stocks and create limits to invest and trade. These limits can be used to trade in Margin and continue trading in F&O segment.

    This facility is available to trade in both equity delivery & cash segment as well as equity F&O (Equity derivatives) segment.

  3. Indiabulls

    Indiabulls offers margin against stocks in 'A' group only.

Discount brokers (low brokerage firm) who doesn't offers margin against shares for F&O carry forward position:

  1. RKSV

    RKSV, the Mumbai based discount broker doesn't offer collateral or margin against shares.

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User Comment

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5. Prashanth  Feb 13, 2017 11:00:43 AM IST Reply
I have pledged stocks, use the margin and trade F&O. One of the pledged stocks has declared a dividend. Where will this dividend be credited to?
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4. syan  Aug 7, 2016 1:14:24 PM IST Reply
please tell me some one about why my brokerage charge interest on late pay but i didnt pay late, actually i am mostely trading in eqity cash BTST or i keep for 10 days 20 days etc and for example in my portfolio already available 20 shares of HDFCbank in cash posstion it means 24,000 Rs value and today buy any shares value of 20 thousand or 25 thousand Rs. in BTST mood so i got time to pay T+2 days and if within T+2days i got profit so same shares of BTST i sold if not reach on profit range than if i have fund so instant on Wednesday before open the exchange i make Pay-in via online immidtly funds credited to broker and i also inform by phone and sent email about payment id Ref. No. etc but if in case that BTST shares not touching in Profit range and in my bank account not have fund so i sold and cash possition shares from my portfolio so if i am selling any cash position from my portfolio insted of that shares or can not payment so immdetly my Debit in NSE will be equel but broker firm they charged 2or 3 days interest so please tell me some one why Geojit BNP paribas do like that please reply me some one i will very thankful to you thanks
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3. syan  Aug 7, 2016 12:55:35 PM IST Reply
Geojit bnp paribas also provide margin against the delivery of equity cash market trade
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2. sanjay  May 4, 2016 12:15:53 AM IST Reply
ventura also does it. I want to what are other discount brokers who offers.
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2.1. Sandy  Jun 6, 2016 12:51:12 PM IST
Hi sanjay, TradeSmart Online has started providing Margin against shares as well as Margin funding
avatar
1. siv  Apr 17, 2015 10:22:23 PM IST Reply
very very informative,given clear picture....really Excellent
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