Margin Trading Facility (MTF) is a product approved by exchanges that allows you to buy stocks by paying only part of the total value. The broker funds the remaining amount and charges interest on this loan.
Let's say you have Rs 100 but want to buy shares worth Rs 500.
Here's where the Margin Trading Facility (MTF) steps in.
Typically, you need to provide 20% of Rs 500 as your initial investment, which amounts to Rs 100. However, depending on the stock, this percentage can increase. For our example, we'll stick with 20%. The broker then funds you the remaining Rs 400 (80% of Rs 500). With MTF, you can now purchase Rs 500 worth of shares with just Rs 100. It's important to note that the stocks must be verified (pledged with the broker) per SEBI guidelines to purchase under MTF.
Interest Charges: Groww charges 0.05% + GST per day on the borrowed amount. So, if you borrow Rs 400, the daily interest would be Rs 0.20 + GST. This cost will be deducted from your gains or added to your losses.
Suppose the share value rises to Rs 550. Your profit would be Rs 50 (Rs 550 - Rs 500). Since you invested Rs 100 of your own money, your return on investment is 50% (Rs 50 profit on Rs 100 invested).
Conversely, if the share value drops to Rs 450, your loss would be Rs 50 (Rs 500 - Rs 450). With your initial investment of Rs 100, this results in a 50% loss.
While this leverage can lead to higher returns, it also increases the risk of significant losses if the share price falls.
By understanding and utilizing the Margin Trading Facility, you can make the most of limited funds and maximize your investment opportunities in the stock market. However, it's crucial to be aware of the associated risks, including the possibility of magnified losses and interest costs, and to use this responsibly.
Step 1: Choose the stock you want to buy.
Step 2: Switch to the "MTF" option on the order cart.
Step 3: Agree to the Terms & Conditions by marking the checkbox, then click on "Activate MTF."
Step 4: Enter the quantity of shares you wish to purchase and click "Verify to buy."
Step 5: You will be redirected to the CDSL portal where you need to verify (pledged with the broker) the order by entering the OTP received on the registered mobile number.
Step 6: You're all set! Your MTF transaction is complete.
Note: We are gradually rolling out MTF to users, and it will be available to everyone soon.
Listed down are some of the advantages and risks associated with Margin Trading Facility-
It's essential to understand the risks associated with MTF, including the possibility of higher losses, minimum balance requirements, liquidation risks, and interest costs. Margin Trading Facility can amplify both profits and losses, and improper use can lead to significant financial strain. Therefore, approach MTF with caution and clear investment goals.
To manage these risks effectively and maximize your investment opportunities, follow these:
By taking these steps, you can leverage MTF while minimizing potential downsides and enhancing your overall investment experience.