What changes due to new upfront margin requirements?
1. Sales proceeds from investments can be used for taking new positions
If you sell shares out of your demat account, there is no additional margin charged on the sell leg, since the shares are meant for delivery, and they are eventually delivered in the form of Early Pay-in.
Instead, as per guidelines issued by SEBI in December 2020, if you sell shares from your demat account, 80% of the sale proceeds gets available on the same day, that you can use to enter into another trade or take another position. If you buy back the same shares on the same day, it becomes an intraday trade, and the delivery gets withheld, resulting in forfeiture of margins against 80% of the sell value, as previously mentioned.
You can do either of the following to avoid margin shortfall.
Buy back 80% of the value of shares sold
OR
Use 80% of the sell value as margins to take any other position
If you sell your holdings and then buy them back after utilizing the sale proceeds in other trades, a margin penalty as per the new peak margin rules may be levied.
The value of buy back of sold shares on the same day will be restricted to 80% of the value of shares sold.
For example, if you sell Rs 100,000 worth of TCS shares
You will be able to buy back TCS shares up to Rs 80,000 value.
OR
You can use Rs. 80,000 as margins to take any other position except TCS.
You cannot buy Rs. 400,000 worth of TCS shares (using Rs. 80,000 as margin @ 20%), unless you have additional margins over and above Rs. 80,000 here.
2. Using the sales proceeds from T1 investments
Like your stock investments, you can sell the T1 investments, i.e., stocks purchased on the previous day which are yet to be credited to your demat, and utilize 80% of the sell value of the proceeds to buy fresh stocks for delivery. Although, you will be only able to use 60% of the sell value for F&O.
Intraday profits can be utilized for fresh positions but only after they are settled. Your Neo fund balance will show your intraday profits only after they are settled by the exchange. The settlement of funds takes place after 2 trading days for equity and after one day for F&O.
If the T+2 day for equity and T+1 day for F&O happens to be a settlement holiday, then the intraday profits will be available on the next trading day.
3. Option sell credit can be only utilized to purchase options on the same trading day
While exiting your long/buy option positions or entering new write/short options, the proceeds of option premium can be utilized for only fresh long/buy option trades on the same trading day and only in the same segment. For example, you will be unable to use proceeds from equity options for currency on the same day transaction. However, these proceeds can be used for all other types of trades from the next trading day.