What are the advantages of Margin Trading Funding (MTF)?
There are several advantages of trading using the MTF facility:
- Margin trading with Geojit gives you access to funds and allows you to get up to 4 times margin/ leverage.
For example, Mr Thomas wants to buy 1000 shares of Tata Motors at Rs. 500 per share. Let us look at how he can take a position with and without MTF:
| Particulars | Without MTF | With MTF-1 | With MTF-2 |
|---|---|---|---|
| Cash Margins | Rs. 1,50,000 | Rs. 1,50,000 | - |
| Pledged Collateral | - | - | Rs. 3,00,000 |
| MTF Loan | - | Rs. 3,50,000 | Rs. 5,00,000 |
| Total Investment | Rs. 1,50,000 | Rs. 5,00,000 | Rs. 5,00,000 |
| No. of Shares Purchased | 300 | 1000 | 1000 |
- It provides access to low-cost funding. Interest is not charged till the settlement day (T+1) of the purchase. After the settlement day, interest charges are applicable @ 0.0275% per day for 4 calendar days and @ 0.05% per day thereafter.
- It allows you to maximise your ROI (Return on Investment).
For example, Mr Thomas sees an opportunity to buy 1000 shares of Tata Motors at Rs. 500 per share as he expects its price to go to Rs. 600 over the next month. Let us look at how he can take a position with and without MTF:
| Particulars | Without MTF | With MTF-1 | With MTF-2 |
|---|---|---|---|
| Cash Margins | Rs. 1,50,000 | Rs. 1,50,000 | Rs. 75,000 |
| Pledge Margins | - | - | Rs. 75,000 |
| MTF Loan | - | Rs. 3,50,000 | Rs. 4,25,000 |
| Total Investment | Rs. 1,50,000 | Rs. 5,00,000 | Rs. 75,000 |
| Tata Motors Price- Dec 1st (BUY) | Rs. 500 per share | Rs. 500 per share | Rs. 500 per share |
| No. of Shares Purchased | 300 | 1000 | 1000 |
| Tata Motors Price- Dec 31st (SELL) | Rs. 600 per share | Rs. 600 per share | Rs. 600 per share |
| Total Profit | Rs. 30,000 | Rs. 1,00,000 | Rs. 1,00,000 |
| Interest on MTF Loan @ 18% | - | Rs. 4,584 | Rs. 5,566 |
| Net Profit | Rs. 30,000 | Rs. 95,416 | Rs. 94,434 |
| ROI | 20% | 63.6% | 125% |
- It is ideal for investors to take advantage of short-term fluctuations in the market.
- The MTF facility is regulated and monitored by SEBI (Securities Exchange Board of India).
- Investors are eligible to receive all corporate action benefits, as shares pledged under the MTF facility continue to remain in their demat accounts.
- Unlike regular trading accounts, MTF trades will not cause your account to be blocked due to a 7-day debit. If blocked, customer will be permitted to take MTF position, but he will have to mandatorily pledge the MTF shares before settlement.
This margin requirement starts from 25% and varies scripwise. The percentage defined here can change based on market conditions.
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