What are m.Stock's MTF charges?
Introduction to Margin Trading Facility (MTF)
There are times when certain stocks are in an uptrend due to some favourabe news about a sector or company. In such cases, investors may want to buy large quantities of such stocks. However, lack of funds (capital) may restrict or limit them from being able to take the position. In such situations, investors can use Margin Trading Facility (MTF) instead of missing out on the opportunity.
MTF is a funding facility which allows investors to buy stocks by paying a fraction of the total transaction value upfront (just like you pay a down payment for your loans). Your broker (m.Stock) funds the balance trade value (up to 80%) in exchange for interest.
The interest charged on your MTF trade is very important as it directly affects your take home profit. This is where m.Stock’s Margin Trading Facility (eMargin) stands out. m.Stock offers one of the lowest MTF interest rates in the industry. Yes, while MTF interest rate in the industry can go as high as 24% p.a., eMargin interest rate with m.Stock starts as low as 6.99% p.a. for funding above ₹5 crore. Even the maximum MTF interest is capped at 9.49% p.a. (on funding up to ₹25 lakhs).
Interest is one of the many MTF charges that investors have to bear. In this article we will discuss about various MTF charges and also learn about m.Stock’s eMargin charges.
m.Stock MTF charges #1: Interest charged on funding amount
Interest charged on MTF trades and your take home profits have an inverse relationship. So, the higher the interest charged, the lower your take home profits will be. As per industry standards, MTF interest can go as high as 18% p.a. to 24% p.a. However, with m.Stock, eMargin interest rate ranges from 6.99% p.a. to 9.49% p.a.
The interest charged by m.Stock on eMargin depends on two factors: gross funding value and holding period. The below table shows our eMargin funding slabs and interest charged.
| Funding Value | Interest Charged (p.a.) |
|---|---|
| Above ₹5 crore | 6.99% |
| Above ₹25 lakhs and up to ₹5 crore | 7.99% |
| Up to ₹25 lakhs | 9.49% |
Let us understand how MTF interest is charged with an example. Say you want to place a trade worth ₹35 lakhs (total trade value). With m.Stock, you will get up to 80% funding i.e. ₹28 lakhs. As per the above slab, you will have to pay interest @7.99% p.a. Assuming you hold this position for a year, the total interest payable on this trade will be ₹2.33 lakhs (for one year). The interest levied on MTF is payable on a daily basis and is debited from your ledger directly till the time you hold the position.
In comparison, if you availed the same funding (₹ 28 lakhs) with other broker charging 12% p.a., your total interest payable will be ₹ 3.36 lakhs i.e., ₹ 1.12 lakhs extra. Hence, from an interest rate point of view, m.Stock’s eMargin makes better financial sense.
You can use our MTF calculator to calculate interest savings on your eMargin trades.
m.Stock MTF charges #2: Pledge and unpledge charges
Margin trading facility involves pledging stocks in favour of the broker. While ‘post-pledge’ (pledging after you have purchased the stock) is the norm industry-wide, it can be a hassle for investors. You see, pledge request is sent by CDSL via email and has to be approved by 10:00 am (depends on broker) on T+1 day. Failure to do so will result in eMargin trade being converted into delivery. As a result, you will have to pay the entire trade value within T+1 day or pay interest on debit amount at 18% p.a. till T+6 days. To avoid this, m.Stock introduced the concept of ‘pre-pledge’. Here stocks are pledged before the actual purchase transaction goes through.
Now pledging and un-pledging of stocks comes with a charge. At m.Stock, pledge charges are ₹25 per pledge request under the lifetime free AMC plan and ₹32 per pledge request under the quarterly AMC plan.
m.Stock MTF charges #3: Subscription charges
Most brokers charge a subscription fee to avail their margin trading facility which can be as high as ₹10,000 a year. But with m.Stock, there is no subscription fees as eMargin facility comes free with your m.Stock Demat account.
While you may think ₹10,000 annual or even one-time subscription fee isn’t much, it does increase your effective rate of interest. Let us see how. Continuing with the above example, the interest rate charged by your broker on borrowing of ₹28 lakhs is 12% p.a. But when you add subscription fee of ₹10,000 in the equation, your effective interest rate increases from 12% p.a. to 12.36% p.a. Zero subscription fees is another key reason to opt for m.Stock’s eMargin facility.
m.Stock MTF charges #4: Brokerage on MTF trades
In addition to the subscription fees, most brokers also charge brokerage on MTF trades. In the above example, let’s say your broker also charges you ₹20 brokerage (on MTF trade) and you place a total of 200 orders. Now your total outflow is ₹3.50 lakhs split as follows:
| With m.Stock | Other brokers | |
|---|---|---|
| Actual interest paid | ₹ 2.23 lakhs | ₹ 3.36 lakhs |
| Subscription fees | ₹ 0 | ₹ 10,000 |
| Brokerage paid | ₹ 0 | ₹ 4,000 |
| Total interest paid | ₹2.23 lakhs | ₹3.50 lakhs |
| Effective rate of interest | 7.99% | 12.50% |
As evident from the above table, your total savings when you avail m.Stock’s MTF (eMargin) is a massive ₹1.26 lakhs!
With such high savings at stake, opting for m.Stock’s MTF (eMargin) makes financial sense. You get up to 80% funding and can seize lucrative investment opportunities in 700+ mtf stocks, whilst paying low interest rates. To avail m.Stock’s eMargin facility, simply open an m.Stock demat account and trade big without paying big!
