BAJAJ BROKING

Notification
No new Notification messages
One Mobikwik Systems IPO is Open!
Apply for the One Mobikwik Systems IPO through UPI in just minutes.
Open a Free Demat Account
Pay ZERO maintenance charges for the first year, get free stock picks daily, and more.
Trade Now, Pay Later with up to 4x
Never miss a good trading opportunity due to low funds with our MTF feature.
Track Market Movers Instantly
Stay updated with real-time data. Get insights at your fingertips.

What is the Rate of Interest Charged on Margin Trading Facility?

Listen to our Podcast: Grow your wealth and keep it secure.

0:00 / 0:00

Margin Trading Facility (MTF) has become increasingly popular among investors in India, offering the opportunity to leverage their investments and potentially amplify their gains. If you, too, are considering entering the world of MTF, then it’s important for you to understand the rates and how much interest is charged per day on this facility. 

Let us further examine the concept of MTF interest rates and provide you with a clear understanding of how much interest is charged on MTF per day.

Understanding MTF Interest Rates

Margin trading grants you the power to expand your trading capacity by borrowing funds from your broker. The MTF interest rate is the price associated with this borrowing, calculated based on the margin rate – which signifies the percentage of the trade value that you need to provide as collateral.

MTF interest rates are set by respective brokers. The dynamic nature of the market, prevailing economic conditions, and the broker’s risk management strategies are just some of the factors that affect the eventual rate. Often, the goal is to find an equilibrium between offering competitive rates and fostering responsible trading practices.

How to Calculate MTF Interest Rate?

MTF interest rates are typically applied on a daily basis, computed as a percentage of the borrowed amount. This implies that the quantum of interest charges is directly linked to the borrowed sum. While the specific interest rate varies, it is imperative to note that MTF interest rates generally exceed standard bank loan rates due to the heightened risk inherent in margin trading.

Calculating the interest on margin becomes relatively straightforward once you’ve grasped the formula and gathered the necessary information. This interest computation hinges on three pivotal factors: the margin used, the margin trading interest rate, and the duration for which the margin is held. The formula for interest on margin computation is as follows:

Interest on Margin = (Total Buying Power × Margin Trading Interest Rate × Time Period) / 365

Here’s a breakdown of the components:

  • Total Buying Power: Available Cash Balance + MTF Position
  • Margin Trading Interest Rate: It signifies the annualised interest rate levied by the broker on the borrowed funds.
  • Time Period: Refers to the number of days throughout which the margin remains active.

Crucially, the time period is typically expressed in days and then divided by 365, thereby transforming the interest rate into a daily rate. However, it’s worth noting that certain brokers might opt for a 360-day divisor instead of 365 for this calculation.

Illustrating the Calculation with an Example: Suppose your annual interest rate is 14%, and you have created a total buying power of ₹2,00,000 for a loan term of 30 days. The calculation would be:

14% (0.14) * 2,00,000 = ₹28,000 (annual interest)

₹28,000 / 365 days = ₹76.71 (daily interest)

₹76.71 * 30 days = ₹2,301.3 (interest for the loan term)

So, for a loan term of 30 days, the interest payable would be ₹2,301.3.

*Please note, statutory charges are applicable separately. It’s important to understand that the interest rate imposed can exhibit variations based on the broker you’re engaged with and the specific financial instruments you’re trading. Thus, it’s advisable to maintain regular communication with your broker to glean the most current and accurate information pertaining to interest rates and associated charges.

Also Read: The Pros and Cons of Margin Trading

Exploring the Benefits of MTF with Bajaj Broking

Opting for margin trading through Bajaj Broking unfolds a range of benefits meticulously designed to enrich your trading experience:

  • Documentation-Free: Bajaj Broking simplifies the process by negating the need for extensive documentation while availing MTF.
  • User-Friendly Platform: Bajaj Broking’s platform offers effortless access, ensuring a seamless margin trading experience.
  • Generous MTF Limits: Bajaj Broking extends substantial MTF limits, encompassing amounts up to ₹90 crores, thereby offering significant leverage.
  • Competitive Interest Rates: Bajaj Broking takes pride in providing some of the most competitive MTF interest rates, thereby ensuring a cost-effective trading endeavour.
  • Amplified Leverage: Traders can bask in the luxury of enjoying up to 4 times leverage on both cash and shares, thereby augmenting the trading potential.
  • Call & Trade Support: The provision of call and trade support further enhances the trading journey by offering additional assistance.
  • Personalised Relationship Manager: Bajaj Broking assigns a dedicated relationship manager to cater to your needs, thereby ensuring a personalised and tailored assistance experience.

Bajaj Broking MTF Interest Rate Variants

Bajaj Broking approach to MTF interest rates is exemplified by its three distinctive MTF interest rate variants, all of which are some of the lowest in the Indian market:

  • Freedom Pack: This plan offers an MTF interest rate of 18% per annum.
  • Professional Pack: This category extends an MTF interest rate of 14% per annum. 

Strategies to Mitigate MTF Interest Costs: 

While MTF interest rates are a non-negotiable aspect of margin trading, employing certain strategies can help mitigate their impact on your overall profitability. Consider the following tips:

  • Strategic Trading: Approach position selection for margin trading with caution. Prioritise trades with lower risk profiles to mitigate potential substantial losses.
  • Ongoing Vigilance: Maintain a vigilant watch over market movements and your leveraged positions. Staying well-informed empowers you to make well-reasoned decisions and minimise unforeseen losses.
  • Effective Risk Management: Implement stop-loss orders to curtail potential losses. This strategic move can help you circumvent scenarios where interest charges accumulate due to prolonged retention of unfavourable positions.

Also Read: Margin Trading Tips & Strategies for Beginners

Importance of Low MTF Interest Rates

Low MTF interest rates are crucial for traders using the Margin Trading Facility. A lower interest rate reduces the cost of borrowing, making margin trading more affordable and potentially more profitable. It allows traders to leverage their positions without incurring high interest costs, which can eat into their profits. For frequent traders, lower MTF interest rates can significantly impact overall returns, enhancing their ability to capitalize on market opportunities efficiently.

Conclusion

Navigating Margin Trading interest rates presents a crucial aspect for traders aiming to capitalise on margin trading. While the tool can unlock substantial opportunities, its associated risks and costs demand careful consideration. The margin trading interest rate can wield a substantial impact on your trading outcomes, hinging on market shifts and trading strategies.

Prior to engaging in margin trading, ensure you’re well-acquainted with the broker’s interest rates, penalties on unsettled margins, and the art of calculating margin interest. Armed with this knowledge, you can make informed decisions, proficiently manage risks, and extract the maximum potential from margin trading while safeguarding your capital.

Share this article: 

Frequently Asked Questions

What is the MTF interest rate?

Answer Field

The MTF interest rate is the interest charged by brokers for funds borrowed under the Margin Trading Facility. This rate varies among brokers and can significantly impact trading costs.

What is the rate of margin?

Answer Field

The rate of margin refers to the percentage of the total trade value that a trader must deposit to use the Margin Trading Facility. It is determined by the broker and the regulatory body.

Can the margin trading interest rate change over time?

Answer Field

Yes, the margin trading interest rate can change over time based on market conditions, regulatory changes, and the broker's policies. Traders should stay informed about any changes to manage their costs effectively.

How much interest does the broker charge for margin?

Answer Field

Brokers charge different interest rates for margin trading. Typically, the rates range from 8.5% to 18% per annum. It is essential to compare rates among brokers to find the most cost-effective option.

What is the maximum MTF limit?

Answer Field

The maximum MTF limit varies by broker and depends on the trader's account balance, trading history, and the broker's policies. It is typically a multiple of the trader's available margin. With Bajaj Broking the leverage available is up to 4x. 

What is the Penalty on Unsettled Margin?

Answer Field

Penalties on unsettled margins vary by broker and can include additional interest charges, restrictions on trading activities, and possible liquidation of positions to cover the shortfall. It is crucial to understand your broker's policies to avoid penalties.

No Result Found

Read More Blogs

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

8 Lacs+ Users

icon-with-text

4.4+ App Rating

icon-with-text

4 Languages

icon-with-text

₹4700+ Cr MTF Book

icon-with-text