Monitor trades closely, use stop-losses, and bet on quality stocks

The outstanding margin trading facility (MTF) book of domestic brokerages crossed ₹1 trillion for the first time this month, rising 2.3 times over the past year.

- HIMALI PATEL

At the peak of the Covid crisis in March 2020, the book stood at under ₹3,200 crore. Investors should clearly understand the benefits and drawbacks of this facility before opting for it.

HowMTF works

Investors pay part of the transaction value upfront as margin, while the broker funds the rest. “The margin can be put up in the form of cash or approved securities. The purchased shares remain pledged until the loan is repaid,” says Sandip Raichura, chief executive officer (CEO) - retail broking and distribution, and director, PL Capital.

MTF is effectively a loan from the broker, available only in the cash segment, to buy stocks or exchange-traded funds. The leverage can be up to five times.

“Investors with high conviction in a stock but lacking sufficient funds can activate MTF with their broker,” says Ashish Nanda, chief digital business officer, Kotak Securities.