How to Pledge Shares and Mutual Funds for Trading Margin (Haircut & Margin Rules)
Traders who hold long-term investments in equity shares or mutual funds can pledge these securities with their broker to generate trading margin, avoiding the need to keep idle cash in trading ledgers.
1. Margin Haircuts Explained
Clearing corporations assign a percentage discount (haircut) to pledged securities depending on their volatility:
- Liquid Mutual Funds & Overnight Funds: Low haircut (typically 10% to 15%).
- Large-Cap Bluechips (Nifty 50): Moderate haircut (typically 15% to 20%).
- Mid-Cap and Small-Cap Stocks: Higher haircut (25% to 50%).
2. The 50:50 Cash-Collateral Rule
For overnight Futures and Options positions, SEBI mandates that at least 50% of the required margin must be held in cash or cash-equivalent collateral (such as Liquid BeES or Government Securities). The remaining 50% can be funded through non-cash equity collateral.
Editorial Integrity: BrokerLens does not accept payment to promote brokers or alter factual analyses. Read our Editorial Policy and Methodology.