Know the perils of 'BNPL' option for buying stocks

MTF allows investors to borrow from brokers and buy stocks, but what are the risks and costs?

- Jash Kriplani

CICI Direct's latest TV commercial on the "buy now, pay later (BNPL)" offer for stock purchases created a lot of chatter on the microblogging site X about the potential risks of buying shares by borrowing money from a broker.

To be sure, most brokers in India offer a margin trading facility (MTF), positioning it as a "buy now, pay later" option. In this option, investors can use brokers' funds to buy more stocks if they don't have adequate capital.

Zerodha, one of the country's largest brokers in terms of active clients, was among the latest brokers to launch this facility.

"...I haven't been sure about this product for a long time because of obvious reasons. Customers who trade for delivery tend to ignore the impact of the cost of borrowing, and there's always the risk of the trade going against them, which leads to a bigger loss...," Zerodha co-founder Nithin Kamath wrote on X in December 2024.

The MTF book stood at over ₹72,634 crore as of 20 February 2025, showed NSE data.

While the Securities and Exchange Board of India (Sebi) has laid down a regulatory framework for MTF, new and first-time investors should avoid leveraged investing.

How MTF works?

The MTF lets you buy shares with just a fraction of the cost upfront while your broker covers the rest and charges interest on the borrowed sum.

It works by requiring the investor to pay an initial margin—in the form of cash or pledged shares—and borrow the rest from the broker.

Only stocks classified as 'Group I securities' are eligible for the facility. You can only borrow funds to buy these shares and only use these shares as collateral if you pledge existing shares.

Group I securities are liquid stocks that have traded at least 80% of the days in the previous six months. The maximum amount an investor can borrow against a particular stock depends on the initial margin requirements laid down by the stock exchanges, per various Sebi circulars.