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What is MTF Pledge

What is MTF pledge - meaning and process of pledging

Margin Trading Facility (MTF) allows you to buy shares by borrowing a portion of the required investment amount from the broker so that you don’t miss out on lucrative opportunities in case of insufficient capital. m.Stock, a trading and investment platform by Mirae Asset, offers up to 80% funding in more than 700 stocks at one of the lowest MTF interest rates in the industry, starting @6.99% p.a.

Since MTF is a borrowing facility, the shares purchased by you are pledged with the broker during the tenure of your investment. How does pledging work? Why is it important? What is post-pledge and pre-pledge? These are some of the questions we will be answering in this article on MTF pledge. But first, let’s quickly understand what is MTF?

What is a Margin Trading Facility?

Margin Trading Facility (eMargin) is a delivery funding facility, meaning it is for equity delivery only (F&O is excluded). In this, your broker lends you funds against the margin or capital available in your trading account. In exchange for this funding, the broker charges interest on the borrowed amount.

[Read more: How does MTF work?]

What is an MTF Pledge?

Since you are buying stocks using your broker’s funds, the purchased stocks are pledged in the name of the broker. As and when you sell these stocks, the pledge is closed, and you pocket the gains or losses. There are two types of MTF pledge:

a. Post-pledge (standard industry practice)

b. Pre-pledge (m.Stock is the first broker to introduce this facility)

In post-pledge, you place a buy order post which CDSL (depository) will send you a pledge approval request by 9:00 pm on the same day (T Day). You have to approve the pledge request before 10:00 am (differs from broker to broker) on the next day (T+1 Day). If you fail to approve the post-pledge request within the stipulated time, your order will convert from ‘MTF’ to standard ‘delivery’ order, and you will be obligated to pay the entire amount on T+1 day. If you fail to provide the funds, your position will be squared-off and a penalty will be levied (it can go as high as 18%).

Since a lot of investors often miss out on pledging their stocks within a stipulated time period, m.Stock introduced the concept of ‘pre-pledge’. In this, you first pledge the stocks with the broker and post successful authentication of the pledge request, your buy order is processed. This way, you don’t have to deal with the repercussions of missing out on pledge approval.

Here’s the flow of a typical buy transaction under pre-pledge and post-pledge.

As you can see, m.Stock’s pre-pledge facility not only simplifies your trading, but it also helps you avoid untimely position square-off and penalties.

How to place and execute MTF orders with m.Stock?

You can place and execute MTF orders with m.Stock in 3 simple steps:

  • Login and in the order form, select eMargin, enter stock name and quantity
  • Since we follow the ‘pre-pledge’ route, you will be redirected to the CDSL page to authenticate the pledge request. On this page, you will have to enter your BO ID number and authenticate using OTP
  • Post successful authentication, your buy order will be placed automatically. It’s that simple!

Pre-pledge is just one of the reasons why m.Stock’s eMargin is a standout in the industry. Other reasons include:

  • One of the lowest interest rates, starting @6.99% for funding above ₹25 lakhs
  • Up to 80% funding
  • Access to 700+ stocks compared to industry average of 200-500 stocks
  • Unlimited holding period, as opposed to 1-year restriction imposed across industry.

[Read more: 12 reasons that make m.Stock’s MTF unique]

So, if you want to grab lucrative stock market opportunities but do not have sufficient capital, avail m.Stock’s MTF (eMargin) and get up to 80% funding at one of the lowest interest rates, starting @6.99% p.a.

Frequently Asked Questions

The squaring-off process is triggered in case of two scenarios:

  • Failure to pledge the shares by the cut-off time i.e.,10:00 am on T+1 day.
  • Inability to maintain the margin requirement where the position will be squared-off by the RMS team any time after T+4 days.

Both MTF pledge and margin pledge allow you to borrow money to invest in securities. However, they are not the same. In a margin pledge, you pledge existing securities in lieu of getting a higher limit to buy more shares. The securities pledged could be stocks, mutual funds, bonds, etc. But in the case of margin pledge, you have to maintain sufficient cash balance in your trading account, basis which your broker will lend you the remaining funds.

Yes, pre-pledge is any day better than post-pledge. In post-pledge, failure to pledge the securities before stipulated time (10:00 am on T+1 Day) can result in your trade being converted to delivery. When this happens, you are required to pay the entire trade value upfront. If you are unable to pay, your position will be squared-off and an 18% penalty will be levied.

There are two types of brokerage charges associated with pledge. One is the pledge charge and the other is the pledge closure charge. m.Stock charges ₹25 per pledge request (under the lifetime AMC plan) and ₹32 per request under the quarterly AMC plan.

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