Margin Trading for NRI

Published on Monday, November 11, 2019 by Chittorgarh.com Team | Modified on Friday, July 24, 2020

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Margin Trading for NRI

Margin trading facility (MTF) is a service offered by brokers to stock market investors to buy shares by paying only a fraction of the total trade value. The broker funds the balance amount and charges interest on it. The fraction amount paid by the investor is called a margin.

A few brokers in India offer margin funding to non-resident Indians (NRIs). This includes Tradeplus.

Margin funding works in 2 ways:

  1. Cash Funding (Short term loan)
  2. Margin against Shares in the Demat Account.

Margin Trading is only available in select company stocks as predefined by SEBI and Exchanges. The margin percentage is also approved by the SEBI and stock exchanges. You can avail up to 75% of the trading value as margin amount.

Note: Each broker has his own payment terms, maximum loan duration and interest rates.


Normal Vs Margin Trading Difference

In normal trading, an NRI can place a buy order and the full trading value is debited from your NRI bank account once the order is executed. The shares are credited in your NRI demat account in T+2 days where T is the day of your trade.

In margin trading, you can place a buy order and only the margin amount is deducted from your account on order execution. The shares are credited to your demat account in T+2 days. The rest of the amount is funded by the stock broker as a short term loan to the investor.


NRI Stock Brokers offering Margin Funding

Broker

Brokerage

Tradeplus 0.40% (NRE) and 0.30% (NRO)

Note:

  • NRE accounts are not eligible for MTF. Only the funds routed through the NRO account can avail MTF.
  • MTF is available for selective stocks trading only on NSE.

Margin Funding Advantages

  1. It provides higher buying power with limited cash balance to NRI investors. It also helps them earn more profits with small investments.
  2. Positions can be carried forward up to T+N days with T being the day of trading and N being the number of days a position can be carried forward to. N depends on the stock broker's terms and conditions.
  3. Margin funding is regulated by SEBI and Exchanges.
  4. Up to 75% of the trading amount can be funded on select stocks.
  5. The margin amount can be paid in cash or against shares in the demat account.
  6. Stocks lying idle in the demat account can be used for margins.

 

ProStocks Non-PIS NRO Trading

 



Frequently Asked Questions

  1. 1. Is margin funding available for NRI customers?

    An NRI customer is not generally eligible for margin trading facility. Currently, only Tradeplus offers the margin trading facility to NRI clients with certain restrictions.

    Restrictions on MTF:

    1. The MTF offered by Tradeplus is allowed only for the NRO mode of transactions.
    2. The MTF can be utilized for trading only under the cash segment and only for selected scrips (Group 1) as prescribed by SEBI.
    3. The MTF facility can be availed only for trading on NSE.

     

  2. 2. Which stock brokers offer Margin Funding to NRIs?

    Currently, only Tradeplus offers the margin trading facility to NRIs. The facility is not available with other stock brokers.

     

  3. 3. How much margin funding can an NRI avail?

    NRIs can avail a maximum of 75% margin funding on some select stocks as approved by SEBI.

    The percentage of margin funding is predefined by SEBI and stock exchanges.

    Not all stocks are eligible for margin funding. Also, the extent of margin funding varies from broker to broker.

     

  4. 4. For which trading segment an NRI can avail Margin Funding?

    The margin funding for NRIs is only available for the Equity Cash segment for selected stocks. Only stocks from NSE can be bought through this facility.

     

  5. 5. How can NRIs avail the Margin Funding facility?

    Currently, only Tradeplus offers the margin trading facility to NRIs. If you have an NRI trading account and NRI demat account with Tradeplus then you need to access it's trading software and activate the MTF trading facility. The MTF facility will be activated within 15 minutes and you're ready to place MTF orders.

    If you don't have an NRI trading account with Tradeplus then please follow the steps listed here to open a Tradeplus NRI account.

     

  6. 6. Can NRI pledge shares?

    As per RBI guidelines, an NRI is allowed to pledge their shares with Indian banks, overseas banks, and Non-Banking Finance Companies (NBFC) for genuine business purposes. It is a general rule that the NRI shareholders are required to submit the declaration that the funds so availed as loan have been utilized for declared purposes only. An NRI can approach their banks for any guidance required in this regard.

    The below table provides a summarized view on NRI pledging:

    Shares can be pledged with

    Purpose

    Primary Condition for pledging

    Authorised Dealer [AD] Bank in India

    To avail loan for resident investee Indian company

    Indian company should follow all SEBI disclosure norms

    Overseas Bank

    To avail loan for the non-resident investor or for the overseas group company

    The loan should be availed from the overseas bank only and should be utilized for overseas business purposes only. Such funds should not be directly or indirectly be linked to any investments in India.

    NBFC

    [AD bank has been delegated with the power to pledge NRI shareholding with NBFC]

    To avail loan for the resident investee Indian company

    Pledging of only listed equity shares on a recognized stock exchange is allowed.

     

  7. 7. Can NRI pledge Mutual Funds for Trading?

    An NRI is not allowed to pledge mutual funds for trading.

    As per RBI guidelines, an NRI is allowed to pledge their shares/securities with Indian banks, overseas banks, and Non-Banking Finance Companies (NBFC) only for genuine business purposes and not for trading purposes.

     

  8. 8. What are the restrictions on the power of attorney for NRIs?

    Generally, every NRI appoints a Power of Attorney (PoA) to help NRI overcome any difficulties due to geographical boundaries. However, there are some restrictions on PoA that every NRI and PoA holder should be aware of.

    A PoA is not allowed to do the following:

    • Cannot open the NRI account on the name of the NRI.
    • Not allowed to give gifts out of the NRI account.
    • Cannot remit the funds from the NRI account through Demand Draft/Telegraphic Transfer unless mentioned in PoA.
    • Not permitted to raise a loan on NRI's behalf.
    • Cannot transfer funds to the NRE account until permitted.

     

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