How do pledging and haircuts work in MTF?
Your MTF shares stay in your demat but are pledged to the broker until you repay. Shares you offer as margin count for less than their market value: that cut is the haircut.
₹1,00,000 of shares offered as margin, with a 20% haircut
| Market value of your shares | ₹1,00,000 |
|---|---|
| Haircut (20%) | −₹20,000 |
| Counted towards your margin | ₹80,000 |
An example haircut. The real one depends on the stock and your broker, and it can change.
What does pledging mean here?
The shares sit in your own demat account, but they are marked as security for the broker’s loan, so you can’t move them.
Since 2020, shares funded under MTF can only be held by pledge. Since SEBI’s June 2024 rule, they land in your demat and are pledged without your having to approve each one. Most brokers charge a small fee to pledge and unpledge. See what each broker publishes.
Sources: SEBI circular on margin pledges, 25 Feb 2020; SEBI circular on direct pay-out to your demat (via CDSL), 5 Jun 2024
What is the funded amount?
The part of the price the broker pays. It is the amount you are charged interest on.
The rest is your margin. It depends on the stock’s risk numbers, which change daily. Riskier stocks get less funding, so you pay more of the price. See how the margin is set.
Sources: NSE FAQ on Margin Trading Facility, updated 12 Mar 2025
What is a haircut?
A cut taken from the value of shares you offer as margin, because their price could fall.
You can pay your margin in cash, or with Group I shares or equity ETFs you already own. They aren’t counted at full value. The riskier the stock, the bigger the cut.
Sources: NSE FAQ on Margin Trading Facility, updated 12 Mar 2025
When do pledged shares become free again?
When the loan is repaid, by selling the shares or, at brokers that allow it, paying the loan off yourself.
Paying it off turns the shares into normal delivery holdings. Not every broker publishes this, so check its broker page.
Is it risky to pledge more shares for more MTF?
Yes. It stacks one loan on another, so a single market fall hits your margin and your position together.
Whether a broker lets you reuse MTF-bought shares this way varies, and we haven’t found one rule that covers them all. Ask your broker before you rely on it. See also pledging more during a margin call.
Sources: this site’s own reading