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The Margin against Shares (MAS) facility allows you to borrow funds against securities. This is applicable to the securities you own in a Demat account. This facility is also known as margin trading. It may be especially useful when you are falling short of funds.

 

The borrowed amount is usually a percentage of the value of the pledged securities. It serves as collateral. You will also need to pay an interest on the loan amount.

How the Margin Against Shares Facility Works

This value-added service helps ensure that you have easy access to funds when needed. Here is an overview of how it works:

  • You transfer your holdings from your account to the broker’s beneficiary account to get funds against them 

  • The broker will shift the shares to your margin account with the Depository Participant (DP) 

  • You can use the margin amount for intraday trading or trading in equity futures, indices, or currency

  • You cannot take delivery of equities and buy options with this margin

  • You cannot sell the shares and securities you pledge

  • Brokers allow you to take back the collateral any time you want if you no longer wish to use this margin

  • You can repay the amount by selling the shares you bought or by depositing cash in the trading account

  • In the case of profit, your actual profit will be the amount left after deducting the margin

  • In the case of loss, the broker can sell the pledged shares to recover the amount

Benefits of Margin Against Shares

Here are some advantages of margin trading in the stock market:

Leverage

Leverage

You can use the funds received against your holdings to invest in the stock market. This could help expand your investment and potentially earn higher returns.

Flexibility

Flexibility

You can choose how to use the funds and invest in stocks, mutual funds, or other eligible securities.

Quick Access to Funds

Quick Access to Funds

MAS provides hassle-free financing. It allows you to leverage time-sensitive opportunities in the capital market.

Lower Interest Rates

Lower Interest Rates

Since these are secured loans, the interest rate may be lower than those on personal loans.

Continued Earnings

Continued Earnings

You could use this facility to continue receiving bonuses, dividends, and other benefits. These may result from various corporate actions.

Risks Involved in Using a Margin Against Shares

Before you choose the MAS facility, consider the associated risks.  

  • Leverage Risk

Since the funds you get are borrowed, the loss could be higher and this may inflate the risk. Opt for MAS after careful evaluation.

  • Margin Call

The broker may issue a margin call if the margin amount falls below the required level. In this event, you will have to deposit additional funds. If you don’t, the broker may sell the pledged  securities.

  • Change in the Margin Requirement

The broker may change the margin requirement at any time. This may affect your ability to hold on to your securities and obtain funds through the MAS facility.

How to Apply for Margin Against Shares

Certain brokers provide this loan facility as a value-added service. Check whether you can pledge your securities to get funds with your broker. If so, you may have to follow the steps given below:

  • Log in to your account 

  • Navigate to the option to pledge shares for margin 

  • Choose the segment you want to pledge 

  • Submit your request, and you will be directed to the depository portal

  • Enter the OTP sent to your number to verify the request

  • Once the request is accepted, a margin limit will be created in your trading account

Frequently Asked Questions

How does the margin requirement for MAS loans work?

The margin criteria for MAS loans is the minimum percentage of the value of securities you hold. This amount must be maintained as collateral. If the margin requirement is 50%, you must maintain securities worth at least 50% of the loan amount.

What happens if the value of securities held in the Demat account falls below the loan amount?

If the value of securities falls below the limit, the broker will request you to deposit extra funds. If you fail to do this, the broker may sell off some of your securities to bring the account back to the minimum value. This is known as a forced sale or a margin call.

Can an investor get an MAS loan for any securities held in the Demat account?

No, not all securities are eligible for MAS loans. Get the list of eligible securities from the broker.

How is the interest rate on MAS loans compared to other loans?

Since it is a secured loan, the interest rate on MAS loans may be lower than unsecured loans. But the rates vary based on the broker’s policies, market conditions, and other factors. Compare the interest rates and other terms and conditions before you apply.

Is Margin Against Shares the same as Margin Trading Facility?

No. While MAS and MTF help you increase your purchasing power, they are very different. MAS involves getting a loan by pledging eligible Demat holdings as collateral. MTF involves paying only an initial margin to buy shares. The rest is financed by the stockbroker.

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