Margin Trading Facility (MTF)

Margin Trading Facility (MTF) is an exchange-approved product wherein individuals can purchase stocks by paying only the initial margin, with the remaining amount being funded by Kotak Securities Ltd. One can either keep the position open as long as they want or can take delivery of the stock.

Kotak Securities offers lower MTF rates of 9.75% per annum or 0.0267% per day, which are applied from T+1 day onwards on the Trade Free Pro Plan. These charges vary based on your selected brokerage plan.

With the introduction of the pledge model in September 2020, it has become mandatory to pledge stocks purchased under the Margin Trading Facility.To hold your MTF position for as long as you want, user are required to pledge the stocks purchased under MTF on T Day on the link received from NSDL.

Yes, there is a charge of Rs.20 + GST per ISIN for both pledging and unpledging.

In the event that you fail to pledge the stocks purchased under MTF, your position will be liquidated.

With Kotak Securities Ltd, once you have pledged your MTF stocks, you can maintain your position for as long as you wish, or you may choose to convert the position to cash.

To create an MTF position, you can utilise cash, existing stocks, and ETFs held in your Demat account as collateral, post-pledging.

Benefit: Leverage enables you to amplify returns on a smaller investment, as seen when paying only 20% upfront for a 10% return on the stock price, resulting in a 50% return, pre-cost.

Risk: However, it's crucial to note that leveraging also adds losses on a smaller investment. For example, paying only 20% upfront for a 10% loss on the stock price means you lose 50% of your capital, pre-cost. Understanding the risks associated with Leverage is vital for informed decision-making.

Benefit: Unlimited holding period allows you to hold a trade indefinitely if you believe it offers a better chance of making a profit.

Risk: Nevertheless, holding a trade for an extended period increases your interest costs, raising the breakeven for your trade. Additionally, if the trade moves against you, you may need to provide higher margins or face liquidation.

The creation of a MTF position against shares as collateral is now open to investors. SEBI and Exchanges keep a close eye on the securities that qualify for the MTF, and they periodically prescribe the margin that must be placed on such securities (either in cash or as shares of collateral).

Margin trading facility, can be powerful if you aim to maximize the potential of your business. This feature makes it possible to place more bets on the market than your account balance usually is able to allow, which can result in a higher profit margin by increasing purchasing power.

The holding period on MTF with Kotak Securities is unlimited. This means that you can hold a stock for an unlimited number of days in MTF with Kotak Securities. Do note that interest charges will apply for the duration of the position, basis your pricing plan.