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What is Paylater (Margin Trading Facility) for stock trading?

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Paylater (Margin Trading Facility) or MTF is an investment product that allows investors to buy stocks even when they do not have the full amount needed upfront. Through this facility, investors only need to pay a small portion of the total stock price, called the margin. The brokerage finances the remaining balance. Investors can hold their position for as long as they wish, with interest charged on the borrowed amount as per the chosen plan.

MTF offers investors the flexibility to either pay the margin in cash or pledge existing stocks as collateral. If shares are pledged, the interest will be charged on the entire transaction amount rather than just the funded portion. Paylater is especially helpful in enhancing the buying power of investors, allowing them to make larger trades with limited funds while benefiting from an extended holding period.

Bajaj Broking offers this facility for over 900+ stock scrips, making it a highly accessible option for traders looking to leverage their investment power without being constrained by cash flow. However, it is important to manage the associated interest payments to avoid increased costs over time.

How does Paylater (MTF) work?

In Margin Trading Facility (MTF), investors can purchase stocks by paying a fraction of the total cost as a margin, while the broker funds the rest. The margin percentage required depends on the stock, typically around 25%. The remaining balance is considered a loan and the investor is charged interest on this amount.

For example, if an investor wishes to purchase stocks worth ₹2,00,000, they would need to pay ₹50,000 as margin (assuming 25% margin). The remaining ₹1,50,000 would be financed by Bajaj Broking.

Once the shares are bought through MTF, they must be pledged within a specified time (by 2:00 PM on T+1 trading day) to avoid the position being squared off.

Key features of Paylater (MTF) in Stock Trading

  • Leverage: Amplifies purchasing power by allowing up to 4x leverage on eligible stocks and ETFs.

  • Flexible margin payment: Margin can be paid in cash or by pledging existing stocks.

  • Cashless trading: Use collateral to trade without liquidating existing shares.

  • Large stock availability: Access to more than 900 scrips under the Paylater MTF facility.

Benefits of using Paylater for investors

  • Increased buying power: With up to 4x leverage, investors can buy more shares than with just their available funds.

  • Extended flexibility: No fixed tenure for holding stocks, which allows investors to decide when to sell.

  • Cash conservation: Investors can maintain liquidity by using shares as collateral rather than paying cash upfront.

  • Investment potential: Enables more significant exposure to stocks with higher potential returns by providing access to funds that would otherwise not be available.

  • Diversification: By leveraging funds, investors can spread investments across multiple stocks and reduce concentration risk.

How to avail BNPL (MTF) facility for stock trading?

  1. Open a trading account if you do not already have one.

  2. Check for eligibility: Ensure that the stock you wish to buy is available under the Paylater (MTF) facility.

  3. Place a buy order: Select the desired stock or ETF and specify the number of shares you wish to purchase using the MTF facility.

  4. Choose the margin payment method: Decide whether to pay the margin in cash or by pledging existing shares as collateral.

  5. Pledge the shares: If opting for collateral, pledge your shares by authorising the pledge request on the NSDL platform before 2:00 PM on the next trading day.

  6. Monitor your position: Track your investments and ensure timely interest payments to avoid your position being squared off.

Risks involved with BNPL (MTF) in stock trading

While Paylater (MTF) offers significant benefits, it also involves risks. One major risk is the interest cost, which accrues monthly on the financed amount. If the stock price declines or the investor holds the position for an extended period, the interest payments may eat into the potential profits or even result in losses.

Additionally, there is a risk of forced selling. If an investor fails to pledge the shares on time or pay the required interest, the brokerage firm may square off the position, potentially leading to a loss. Investors should also consider the stock market's volatility, as leveraged positions can magnify gains and losses.

How does pledging work in Buy Now Paylater (MTF)?

Pledging plays a crucial role in Margin Trading Facility (MTF). Investors can choose to pledge their existing shares as collateral instead of paying cash upfront for the margin. Once the order is placed, the investor receives a notification (via email or SMS) from NSDL regarding the pledge request.

To complete the pledge, investors need to authorise the request before 2:00 PM on the next trading day (T+1 day). This ensures that the stocks are available as collateral for the loaned amount. If the investor fails to complete the pledge within the given time, the brokerage may square off the position, meaning the shares will be sold to cover the loan.

The interest will continue to accrue as long as the shares remain pledged and the position is held. Pledged shares cannot be traded or transferred until the loan is repaid or the position is squared off.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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Frequently Asked Questions

What is Pay Later (MTF) in stock trading?

Answer Field

Paylater (MTF) in stock trading is a type of Margin Trading Facility that allows investors to buy stocks by paying a small percentage of the total cost, known as the margin. The remaining amount is funded by the broker, offering greater buying power and flexibility for investors.

How does BNPL (MTF) affect my buying power?

Answer Field

Using Paylater (MTF) significantly increases your buying power by allowing you to purchase more shares with less upfront capital. Depending on the margin requirements, Margin Trading Facility can amplify your buying capacity up to 4 times, enabling you to maximise investment opportunities.

What are the charges for pledging stocks under Pay Later (MTF)?

Answer Field

Under the Paylater (MTF) facility, when you pledge stocks, the primary cost involved is the interest charged on the funded amount. This interest is calculated monthly. There are usually no additional fees for pledging stocks, but it is essential to confirm specific charges with your broker.

Can I trade intraday with Pay Later (Margin Trading Facility)?

Answer Field

No, Paylater (MTF) or the Margin Trading Facility is not meant for intraday trading. It is specifically designed for investors who wish to hold stocks for a longer duration. For intraday trading, full payment for the stocks is required as MTF is a leverage-based facility.

What happens if I dont pledge my stocks on time?

Answer Field

If you do not pledge your stocks on time in Paylater (MTF), typically by 2:00 PM on the next trading day (T+1), the broker may square off your position. This means your stocks will be sold to recover the funded amount and you could potentially incur losses.

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