Given the vast availability of trading opportunities, Margin Trading Facility or MTF is a boon for investors as it elevates their trading potential. Under MTF, investors can borrow funds from their broker against their limited capital. In exchange, the broker charges interest on the borrowed funds. The shares purchased under MTF are pledged in the broker’s name for the entire holding period.
Here are the steps to follow while placing an order under MTF while online trading:
- Log in to your broker’s website/app
Look for the MTF facility on your broker’s website or app.
- Select the stock & enter the quantity
Choose the stock you are interested in, along with the desired quantity. The available margin amount will automatically reflect on your screen. You can also use a MTF Calculator to estimate the interest applicable for the number of days you hold the position.
- Pledge the stocks
Next, complete the pledge request. This is mandatory by SEBI. When you buy shares under MTF, you must pledge those shares in the broker’s name. This pledge process should be completed by 9:00 pm on the same day. Else, your shares will be squared off on the T+7th day.
In most cases, shares are pledged after the order is executed. However, this can lead to investors missing out on pledge approval requests, resulting in the order being converted to delivery trade. To eliminate such issues, brokers like m.Stock have introduced a pre-pledge facility, where you pledge the selected stocks before order placement. The request will be processed through the defined guidelines of the Central Depository Services Limited .
- Place the order
Place the order by following the steps specified by your broker. Complete your purchase by making the necessary payment.
How to complete the MTF Pledge process?
- Once your MTF request is approved, go through your emails/SMS for notifications related to the MTF Pledge request initiation
- Click on the CSDL link in the email/SMS. You will be redirected to the CSDL website.
- Provide your PAN/Demat Account details. Cross-check the order details before approving the pledge request to avoid order cancellation.
- Select the stocks to pledge and generate an OTP (One-Time Password)
- Enter the OTP to authorise and complete the pledge process
Things to remember while availing of MTF
- Do not ignore any margin shortfall calls. In case you do, the shares you select will be squared off after four trading days of the shortfall.
- MTF is not a free borrowing facility. It is a kind of Loan. Thus, you are liable to pay interest on it.
- Besides interest payment, you also have to pay a specific charges like subscription costs and pledge charges.
- Opt for MTF only after doing your homework. Trade wisely by ensuring that the trade is suitable for you.
- This facility is applicable only for trading in equity shares. You cannot use it for F&O, Currency or Commodity Trading.
