What is Pay Later (Margin Trading Facility) & its benefits?

Pay Later (Margin Trading Facility) is a type of Equity Product type where users can buy stocks even when they are short on funds. Here users can just pay the fraction of total amount as margin amount and Kotak Securities ltd funds the rest. The margin in Pay Later can be paid either in Cash or Collateral i.e. by creating limit against the shares lying in their demat post confirming the pledging on such stocks.

The position created in Pay later can be held for as long as you want at an interest rate as per his plan opted.

Benefits of Pay Later (MTF)

  1. Unlimited holding period
  2. Enhances buying capacity upto 4 times
  3. Available on more than 1000+ Stocks and ETFs
  4. Trade cashless by using collateral as Margin

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.

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

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 by 2:00 PM on T+1 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 the cut-off time. Interest is supposed to be paid on a monthly basis until you hold the shares.