What is collateral amount in Demat Account - India Infoline (2024)

FAQs

What is collateral amount in Demat Account - India Infoline? ›

For an online demat account, the collateral amount is essentially a loan offered by a stockbroker against the shares held in your Demat account.

What is the minimum margin that I have to maintain? As per RBI norms, a minimum 50% margin must be maintained on equity shares and mutual funds, For other types of collateral, margins range from 10% to 35%.

Total collateral is the sum of the collateral amount received from pledging equity holdings and liquid funds. Collateral from liquid funds is considered 100% cash when used to take any positions. To learn how to pledge holdings, see How to pledge securities to get collateral margin?

5paisa offers 100% collateral but they charge 0.03 % per day on thr 50% cash margin.

Collateral amount in Demat account entails pledging the assets held in your Demat account in return for which the broker provides you with a loan to continue your trading activity. It is the act of increasing the size of your trading capacity by leveraging shares in your Demat account.

Shares purchased using collateral margin under NRML order: If you buy an equity share using collateral margin under NRML order you need to pay the cash amount of share bought within 5 days of transaction date. In case your account doesn't have sufficient cash balance, your shares will be liquidated on 6th day.

Margin is the money borrowed from a broker to purchase an investment and is the difference between the total value of an investment and the loan amount. Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker.

For an online demat account, the collateral amount is essentially a loan offered by a stockbroker against the shares held in your Demat account.

We allow you to fully utilise this and charge 0.035% daily interest (12.775% annually). For cash equivalent securities (liquid collateral), you don't need to margin 50% cash to avoid interest. At Zerodha, this is how we have computed for collateral margin utilisation since the beginning.

What is the cost of collateral in Zerodha? ›

Please note that the collateral amount varies based on the price of the security, and the cost of pledging at Zerodha is Rs 30 + GST per pledge request. Pledge requests are processed at 2:00 PM and 5:00 PM on days when the equity market is open, and there is no cost for un-pledging.

To obtain the weighted collateral value: (New Loan Value / New & Existing Loan Value) * Current Collateral Value = Weighted Collateral Value.

If you have any assets being used as collateral on a loan and don't miss any payments, you won't lose your collateral. However, if you fail to make payments on time and ultimately default on your loan, the collateral can then be seized and sold, with the profits being used to pay off the remainder of the loan.

Collateral held in stock

Selling to open a covered call: You'll need 100 shares per contract of the underlying stock in your portfolio to cover the position. As long as the position is open, you won't be able to sell 100 shares of the underlying stock.

This is important to understand, because brokerage firms require that margin traders maintain a certain percentage of equity in the account as collateral against the purchased securities—typically 30% to 35%, depending on the securities and the brokerage firm.

The value of collateral needs to be greater than the value of the loan; their difference in value is called the collateral margin. Lenders require collateral margin to protect them. Should the loan not be repaid, the collateral margin ensures enough money to collect the collateral and sell it for repayment of the loan.

Collateral margin is defined by the risk for the closeout of a portfolio faced by the clearinghouse. In order to calculate the risk for the closeout of a portfolio consisting of positions and collateral from several markets and asset classes, B3 developed an innovative risk measure: Close-Out Risk Evaluation (CORE).

The 'margin' represents the additional collateral that is provided under the repo as a percentage of the purchase price applied by the Reserve Bank. For example, if a margin of 10 per cent was to be applied to a security with a market value of $100, then the purchase price for the security would be $90.91.