What is MTF and how does it work?

MTF stands for Margin Trading facility. It is an investment product, where you only have to pay a certain percentage of the total amount using cash or margin against pledged shares, while the rest will be funded by Kotak Securities. To know more, kindly Click here.

You can continue to hold the shares for as long as you wish by paying an interest on the funded amount. Unlike Normal orders, MTF is available only for a few exchange approved stocks. This information is available here.

Let us understand this with an example:

You want to buy 100 stocks of ITC worth Rs.200 each using MTF (assuming MTF is available for ITC)

Total amount = Rs. 20,000

Margin requirement for ITC is 25%, which means you will have to pay 25% of the total amount i.e. Rs. 5,000 upfront. You can pay this either in the form of cash from your funds or by pledging shares.

1. Consider you are using cash to bring the required margin. In this scenario, Rs.15,000 will be funded by Kotak Securities and the interest will be applicable on Rs. 15,000 only. Assuming the interest rate to be 2% per month, you will have to pay 2% on Rs.15,000 (funded amount) i.e. Rs.300 as the monthly interest

2. Now consider you choose to bring the required margin by pledging your shares. In this scenario, the entire amount i.e Rs. 20,000 will be considered as the funded amount and the interest will be applicable on the same. Assuming the interest rate to be 2% per month, you will have to pay 2% on Rs.20,000 (funded amount) i.e. Rs.400 as the monthly interest

The shares you bought using MTF will have to be pledged as collateral to Kotak Securities and you will have to keep paying interest until you hold the shares.

• Pledging of shares has to be done within two trading days by authorizing the pledge request on NSDL. You will receive an email and SMS regarding the same after a few hours of placing the order. Your shares will be squared off incase you fail to pledge them within two trading days

• Interest is supposed to be paid on a monthly basis until you hold the shares. To make the interest payment, ensure adding funds to your trading account within 7 days of receiving the interest statement on your registered email address.