August 07, 2025
4 mins read
A pledge margin refers to the use of eligible shares, ETFs, or mutual funds as collateral for margin trading, to support margin requirements for trades, MTF orders, and margin shortfalls. It also exposes users to haircuts, interest costs, and liquidation risk during high volatility periods. Overall, pledge margin is designed to support margin utilisation within defined regulatory and risk frameworks.
When eligible securities are pledged in a demat account, margin trading may be undertaken using those securities as collateral, subject to applicable requirements.
All pledged securities have a reduced value (haircut) after trading margins are applied. The actual amount of the haircut is determined by the rules & regulations of the relevant Stock Exchange/Risk Management Practices.
This allows trading based on the collateral value of existing investments without immediate liquidation. The only types of approved securities eligible for this are selected shares, Exchange Traded Funds (ETFs), and specific Mutual Funds.
Ownership of the securities does not change. Yet, the pledged securities remain blocked and cannot be sold or transferred until they are unpledged. This structure may improve capital utilisation while long-term holdings remain invested.
Pledging is generally an online process, subject to platform and depository procedures. Pledge procedures broadly follow depository guidelines, though platform workflows may differ, so it is simple to follow each step.
To initiate pledging, the trading account must be accessed using registered credentials. The dashboard displays current holdings eligible for pledging.
Next, identify the Holdings, Portfolio, or Pledge tabs that indicate the securities that may be eligible for pledging. This section reflects the securities you can pledge for loans, such as stocks, bonds, ETFS and other funds.
Select your eligible shares or other securities (e.g., ETFs and mutual funds) and enter the amount of each security or percentage of each security you wish to pledge in your account.
Confirm the pledge request on the platform. Then, complete OTP authorisation sent by CDSL or NSDL.
Once confirmed, eligible securities are marked as pledged as per the depository confirmation. The margin becomes available in the trading account, subject to applicable limits.
Trading margin generally comes from two sources: cash and pledged securities. Brokers typically apply cash margin to meet exchange requirements for SPAN or exposure margin first. After cash margins are applied, pledged margin may be utilised as per exchange and broker risk policies. This order of application follows both the guidelines of the exchange and the risk policy of the broker.
The amount of pledged collateral was first adjusted downwards by a 'haircut', which is a deduction from its value (80% in our example), and then reduced to determine the 'usable' margin amount that the trader will have access to.
Many types of trades will require a portion of the total cash in the account as collateral; therefore, keeping both elements available for potential use may help manage margin requirements and reduce the likelihood of collateral shortfalls.
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Yes, a nominal fee may apply per ISIN as per depository rules. Some brokers may also charge for using the pledge margin facility. Charges are generally low, but it’s advisable to check the applicable fees before initiating a pledge or unpledge request.
Interest is charged only on the funded portion, not the entire trade value. The rate is calculated daily and added monthly. It starts from the date of purchase and continues until the trade is settled or the pledged margin is replaced with cash.
The cash margin is used first to meet the SPAN and exposure margin. If more margin is needed, the pledge margin is used next. Brokers follow a set priority while using margin to ensure all trades meet regulatory and internal risk management requirements.
Yes, you can sell pledged shares after placing an unpledge request. The unpledge process must be completed first. Once approved, you can proceed with the sale. Some platforms allow auto-unpledge during sell orders, depending on the settlement system in place
Yes, if the value of pledged securities falls sharply and the margin shortfall isn’t covered, brokers may liquidate positions. This helps them manage risk. It is essential to maintain a prudent margin and closely monitor holdings during volatile market phases to avoid such actions.
Yes, you continue to receive dividends even when your shares are pledged. However, in some cases, the dividend may be received by the broker and passed on to you later. The ownership of the shares remains with you despite the pledge.
Certain securities, such as approved stocks, ETFs, and specific mutual fund units, may be eligible for pledging, subject to exchange and depository acceptance criteria. The pledged instrument must be on the list of accepted collateral for your broker or depository. Margin benefit is provided only on securities accepted as eligible collateral by the exchange and clearing corporation, as applicable.
To be eligible for a pledge, a security must be approved by the exchange or broker for margin. Typically, the security must meet criteria related to liquidity and risk rating. The accepted list may include certain stocks, ETFs, or approved mutual fund/ETF units.
A haircut is a percentage reduction applied to the market value of pledged securities. The reduced value (after haircut) becomes the usable collateral margin. For example, if a security worth ₹100,000 has a 20% haircut, the collateral value becomes ₹80,000.
Yes. You can unpledge part of the pledged securities, subject to any restrictions imposed by your broker or depository. Partial unpledging returns only the requested quantity, while the remaining amount remains pledged until released.
Certain securities, such as approved stocks, ETFs, and specific mutual fund units, may be eligible for pledging, subject to exchange and depository acceptance criteria. The pledged instrument must be on the list of accepted collateral for your broker or depository. Margin benefit is provided only on securities accepted as eligible collateral by the exchange and clearing corporation, as applicable.
To be eligible for a pledge, a security must be approved by the exchange or broker for margin. Typically, the security must meet criteria related to liquidity and risk rating. The accepted list may include certain stocks, ETFs, or approved mutual fund/ETF units.
A haircut is a percentage reduction applied to the market value of pledged securities. The reduced value (after haircut) becomes the usable collateral margin. For example, if a security worth ₹100,000 has a 20% haircut, the collateral value becomes ₹80,000.
Yes. You can unpledge part of the pledged securities, subject to any restrictions imposed by your broker or depository. Partial unpledging returns only the requested quantity, while the remaining amount remains pledged until released.
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