Understanding Margin Against Shares (MAS) in a Demat Account

If you own shares in a Demat account, you may not always need to sell them to access liquidity. One alternative is using Margin Against Shares (MAS), a facility that allows you to pledge your shareholdings as collateral and receive a margin to trade in the stock market. This can be especially useful if you're looking to seize short-term investment opportunities without liquidating your portfolio.

This page explains what MAS is, how it works, its key features, and the factors you must consider before using it.

Margin Against Shares (MAS) is a facility offered by stockbrokers that lets you pledge your existing shares or securities held in a Demat account in exchange for a trading margin. This margin can then be used to invest in equity or derivative segments—without selling your holdings.

In essence, you borrow against the market value of your securities to fund further trades. The shares remain in your account but are marked as pledged until the obligation is cleared.

A margin account enables you to trade using borrowed funds from the broker by pledging eligible securities. The broker assigns a certain Loan-to-Value (LTV) ratio to each pledged asset. Based on this LTV, a percentage of the value of your pledged shares is made available as margin.

Example:
If you pledge shares worth ₹1,00,000 and the applicable LTV is 50%, you’ll receive ₹50,000 as trading margin. This amount can be used to take positions in shares, futures, or options.

Do note that this borrowed margin is not a loan credited to your bank account. It’s made available only within your trading account.

The availability of MAS depends on the type and value of the securities you hold. Typically accepted instruments include:

• Equity shares from the approved list
  

• Exchange-Traded Funds (ETFs)
  

• Mutual fund units (in some cases)
  

• Government securities and bonds
  

The eligibility and applicable LTV depend on broker policies and regulations set by the exchange and depository.

You can avail MAS through a fairly straightforward process:

Step 1: Open a margin-enabled trading account with your broker.

Step 2: Select the shares you wish to pledge from your Demat account.

Step 3: Authorise the pledge request through the CDSL/NSDL platform.

Step 4: Receive the margin amount in your trading account once the pledge is confirmed.

Step 5: Use the margin to trade in permitted segments.

The shares remain in your Demat account but cannot be sold or transferred while pledged.

Once approved, the margin amount is reflected in your trading account under 'collateral' or 'margin available against pledged shares'. This can be used in accordance with your broker's policy—often for intraday, delivery, or derivative trades.

You can also track the status of your pledged securities and released margin via the depository’s official portal:

• For CDSL: https://www.cdslindia.com
  

• For NSDL: https://www.nsdl.co.in
  

The LTV ratio indicates the proportion of the market value of securities that can be used as margin. This value typically ranges between 20% and 75%, depending on:

• The security type
  

• Volatility
  

• Regulatory guidelines
  

Example:
Blue-chip stocks might carry a higher LTV (say, 70%), while less liquid shares may have a lower ratio or may not be eligible at all.

The LTV is recalculated daily based on prevailing market prices.

Margin Against Shares (MAS) offers several benefits that can enhance your trading flexibility and capital efficiency:

• Preserve ownership: You retain your shares and any benefits (like dividends) that come with them.
  

• Leverage trading: Enables you to take larger market positions than your available capital would otherwise allow.
  

• Liquidity without selling: Access funds without disturbing long-term investments.
  

• Efficient capital use: Make the most of idle securities in your Demat account.
  

While MAS provides flexibility, it's important to be aware of potential risks:

• Market volatility: If the value of pledged shares falls, your available margin reduces, leading to margin calls.
  

• Interest or fees: Some brokers charge a nominal interest or fee for offering MAS, which may affect your trading costs.
  

• Forced liquidation: If a margin call is not met, your broker may sell pledged shares to recover dues.
  

• LTV risk: A fall in LTV due to market movement can reduce your margin availability suddenly.

Always monitor your margin utilisation and the value of pledged securities

Here’s how Margin Against Shares compares with a typical loan against securities:

Before using Margin Against Shares, consider these factors to manage risk and stay compliant:

• Understand your risk appetite: Leveraged trading can magnify gains and losses.
  

• Monitor your margin levels: Regularly check for any margin shortfall or pledge requirement.
  

• Read broker terms carefully: Charges, LTV ratios, and eligible securities may vary.
  

• Check regulatory limits: SEBI regulations govern margin pledging and trading, and brokers must comply.
  

Tax Implications of MAS

There are no immediate tax liabilities when you pledge shares under MAS. However, any gains or losses from trades executed using this margin may have capital gains implications, depending on the holding period and type of asset. Consult a qualified tax advisor for specific scenarios.

Margins under MAS are typically available within 1–2 working days of pledging, subject to confirmation. Adjustments to margin happen daily based on:

• Market value of pledged securities
  

• Changes in LTV ratios
  

• Regulatory or broker-level margin changes

To withdraw your shares from the MAS facility:

Step 1: Log in to your trading account and place an ‘unpledge’ request.

Step 2: Confirm the unpledge authorisation via the depository.

Step 3: Margin corresponding to the shares will be debited.

Step 4: Shares are released back to your free Demat balance within 1–2 working days.

Ensure you don’t have open trades or margin dues before initiating an unpledge.

Margin Against Shares is a strategic facility for investors looking to optimise their capital without liquidating existing holdings. By pledging your securities, you gain access to margin that can be used for market participation. While it offers flexibility, MAS also demands careful monitoring and understanding of market risks.

Use this facility only if you have a clear grasp of margin mechanics and a disciplined trading approach.

This content is for educational purpose only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.