Trade at flat Rs. 20/order | Open free* Demat & Trading Account Now Open Account

Margin trading is a popular investment strategy many investors use in the stock market. This involves borrowing funds from a broker to invest in stocks or other securities. The borrowed funds are used as a margin, allowing you to increase the size of your investment and potentially earn greater returns.

 

One way to obtain margin funding is through Margin against Shares (MAS) in a Demat account. Read on to explore what MAS is, how it works, its benefits, and the risks involved.

What is Margin against Shares (MAS)?

Margin against Shares (MAS) is a facility brokers provide to investors to borrow funds against the securities held in their Demat account. It allows you to leverage your existing holdings to obtain additional funds for investing in the stock market.

 

In MAS, the broker offers a loan to you, with the securities in your Demat account serving as collateral. The loan amount is usually a percentage of the value of the securities held in the Demat account.

 

However, the broker determines the interest rate when you opt for a margin against securities. Hence, you are required to pay interest on the loan and maintain a minimum margin amount in your Demat account.

How Does Margin Against Shares (MAS) Work?

Margin Against Shares (MAS) allows you to pledge your shares in a Demat account as collateral to obtain a loan from a bank or financial institution. The loan amount sanctioned depends on the value of the shares pledged and the margin requirements of the bank. 

 

You are charged interest on the loan amount and you must maintain a minimum margin amount to avoid liquidation of shares.

 

For example, if you want to avail MAS, you must provide details of the shares held in your Demat account, including the quantity and the current market value. 

 

Based on this information, the bank or financial institution would calculate the maximum loan amount that can be sanctioned against the shares. Once the loan is sanctioned, the shares are pledged with the bank or financial institution as collateral. 

 

You are then free to use the loan amount for various purposes, such as trading in the stock market, investing in mutual funds, or meeting personal financial needs. 

Benefits of Margin against Shares (MAS)

  • Leverage: One of the main benefits of MAS is that it allows you to leverage your existing holdings to obtain additional funds for investing in the stock market. This can help increase the size of your investment and potentially earn greater returns.

  • Flexibility: MAS provides flexibility in how you use the funds obtained through the loan. You can use this collateral margin against shares to invest in stocks, mutual funds, or any other securities you choose.

  • Quick Access to Funds: MAS provides quick access to funds, allowing you to take advantage of market opportunities.

  • Lower Interest Rates: The interest rates on MAS loans are usually lower than those on personal loans or credit cards, making it a more cost-effective option for obtaining funds.

Risks Involved in Margin against Shares (MAS)

  • Volatility: The stock market is inherently volatile, and investing with borrowed funds can increase the risk of losses. Suppose the value of the securities held in the Demat account falls below the loan amount. In that case, you may be required to deposit additional funds or securities in your Demat account or sell some of your securities to maintain the level of margin needed. 

  • Margin Call: If the margin amount falls below the required level, the broker may issue a margin call, requiring you to deposit additional funds or securities in your Demat account or sell some of your securities to maintain the level of margin needed. Failure to do so may result in the broker selling off the securities held in the Demat account without your consent.

  • Interest Charges: The interest charges on MAS loans can be high, and you need to factor in these charges while making investment decisions. Suppose you are unable to repay the loan amount and interest charges. In this case, the broker may liquidate the securities held in the Demat account to recover the amount you owe.

  • Margin Requirement Changes: The broker may change the margin requirement at any time, affecting your ability to hold on to your securities and obtain additional funds through MAS.

  • Security Risk: Since the securities held in the Demat account are pledged as collateral, there is a risk of losing the securities if the broker goes bankrupt or defaults on the loan.

How to Avail Margin against Shares (MAS)?

To avail the MAS facility, follow these steps:

 

  • Step 1: Open a Demat account with a broker offering the MAS facility

  • Step 2: Pledge the securities held in the Demat account as collateral

  • Step 3: The broker will offer a loan amount based on the value of the securities held in the Demat account

  • Step 4: You are required to pay interest on the loan and maintain a minimum margin amount in the Demat account

  • Step 5: If the margin amount falls below the required level, the broker may issue a margin call, requiring you to either deposit additional funds or securities in your Demat account or sell some of your securities to maintain the required margin level

     

Margin against Shares (MAS) in a Demat account is valuable for investors who want to leverage their existing securities to obtain additional funds for investing in the stock market. However, it is essential to maintain a minimum margin level in the Demat account and monitor the account to avoid a margin call and potential loss of securities.

 

With proper understanding and careful consideration, MAS can effectively expand an investment portfolio and achieve financial goals. Furthermore, you can access additional details on the Demat account and trading on Bajaj Markets. 

FAQs on Margin Against Shares

How does the margin requirement for MAS loans work?

The margin requirement for MAS loans is the minimum percentage of the value of securities held in the Demat account that must be maintained as collateral.

For example, if the margin requirement is 50%, you must maintain securities worth at least 50% of the loan amount in your Demat account.

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

If the value of securities held in the Demat account falls below the loan amount, the broker may sell off some of your securities without your consent to recover the loan amount. This is known as a forced sale or a margin call.

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

No, not all securities are eligible for MAS loans. The broker may have a list of eligible securities and consider factors such as liquidity, volatility, and market capitalisation when determining the loan amount and margin requirements.

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

The interest rate on MAS loans can be higher than other loans since the securities held in the Demat account are pledged as collateral. The interest rates may also vary based on the securities held in the Demat account and market conditions. 

Hence, comparing the interest rates and other terms and conditions offered by different brokers before availing the MAS facility is essential.

Home
active_tab
Loan Offer
active_tab
Download App
active_tab
Credit Score
active_tab