Now, Pledge Your Port­fo­lio to Get Mar­gin Fund­ing

Clients can trade in shares worth 4 lakh by put­ting in only 1 lakh in cash or by pledg­ing ex­ist­ing shares

The Economic Times - - Companies: Pursuit Of Profit -

Mumbai: In­vestors can now buy shares by pledg­ing their stock port­fo­lio with stock bro­kers. The Se­cu­ri­ties and Ex­change Board of In­dia (Sebi) has al­lowed bro­kers to of­fer a mar­gin fund­ing fa­cil­ity that does not man­date clients to bring cash up­front to ini­ti­ate a lever­aged trade. Bro­kers have be­gun of­fer­ing this fa­cil­ity to clients that would al­low them to buy shares worth over four times the pledged value.

Ear­lier, only non-bank­ing fi­nan­cial com­pa­nies were al­lowed to of­fer such mar­gin prod­ucts.

Mar­gin fund­ing refers to lend­ing money to clients to trade in shares, for which the bro­ker­age charges an in­ter­est. For in­stance, a client can trade in shares worth ₹ 4 lakh by put­ting in only ₹ 1 lakh in cash or by pledg­ing ex­ist­ing shares, while the rest is fi­nanced by the bro­ker­age.

Ear­lier, RBI rules re­quired in­vestors to cough up mar­gins of 50% of the trade to take a lever­aged bet on a share. But it never took off as in­vestors found it ex­pen­sive. Then bro­ker­ages started lend­ing to clients at much lower rates of 18-20%, much to the dis­com­fort of the cap­i­tal mar­ket reg­u­la­tor, which re­cently tweaked the rules.

The new Sebi rules have re­sulted in lend­ing rates com­ing down to as low as 22.5%. The lower rates are for bluechips and stocks that are also part of the fu­tures and op­tions seg­ment.

“The new Sebi cir­cu­lar on mar­gin fund­ing will help re­tail in­vestors to take po­si­tions by pay­ing a small mar­gin, like the F&O seg­ment which will in­di­rectly push or de­velop the cash mar­ket in In­dia” said Kam­lesh Rao, manag­ing direc­tor, Ko­tak Se­cu­ri­ties, which launched this fa­cil­ity on Mon­day. “With this changes, there is a tremen­dous scope for broking houses to lure in­vestors and traders into the cash mar­ket”.

In In­dia, the size of cash mar­ket is sig­nif­i­cantly lower than the F&O mar­ket. The av­er­age daily turnover of eq­uity cash mar­ket in In­dia is about ₹ 24,550 crore com­pared with ₹ 5,05,600 crore turnover of F&O seg­ment in 2017.

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