Mtf Vs Loan Against Shares

By Author: Bryan Thomas
Total Articles: 6
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Investors often need additional funds either to buy more shares or to meet short-term liquidity requirements. Two popular financing options are Margin Trading Facility (MTF) and a Loan Against Shares (LAS). Although both involve using securities to access funds, they serve different purposes.

A Margin Trading Facility allows investors to purchase eligible stocks by paying only a part of the total value, while the broker funds the remaining amount. A Loan Against Shares enables investors to pledge their existing shareholdings and borrow money without selling their investments.

Understanding the differences in funding, costs, flexibility, and MTF charges per day can help investors choose the option that best suits their financial goals.

What is Margin Trading Facility?

Margin Trading Facility (MTF) is a service offered by stockbrokers that enables investors to buy eligible shares by paying only a portion of the investment amount. The broker finances the remaining amount, and investors pay interest on the funded balance until the position is closed.

MTF is commonly used by investors ...
... who want to increase their buying power and take advantage of market opportunities without investing the entire amount upfront.

What is a Loan Against Shares?

A Loan Against Shares (LAS) allows investors to pledge their existing shares as collateral to borrow funds from a bank or financial institution.

Unlike Margin Trading Facility, the borrowed money can generally be used for purposes permitted by the lender's terms and regulatory guidelines, while investors continue to retain ownership of their pledged shares.

MTF vs Loan Against Shares: Key Differences

Feature

Margin Trading Facility (MTF)

Loan Against Shares (LAS)

Purpose

Buy additional eligible shares

Borrow funds against existing shares

Funding Source

Stockbroker

Bank or NBFC

Security

Shares purchased under MTF

Existing share portfolio

Interest

Charged on funded amount

Charged on loan amount

Best For

Investors seeking higher market exposure

Investors needing liquidity without selling shares

Usage

Limited to eligible stock purchases

Subject to lender terms and regulations

Daily MTF Interest Rates of Popular Brokers in India

One of the biggest costs associated with Margin Trading Facility is the daily interest charged on the funded amount. Investors should compare MTF charges per day before choosing a broker.

Broker

Approx. Daily MTF Interest Rate*

Approx. Annual Rate

m.Stock

0.0246% per day

8.99% p.a.

Groww

~0.0411% per day

~15% p.a.

Dhan

~0.0411% per day

~15% p.a.

Upstox

~0.0411% per day

~15% p.a.

Angel One

~0.0411% per day

~15% p.a.

Motilal Oswal

~0.0411% per day

~15% p.a.

ICICI Direct

~0.0411% per day

~15% p.a.

Benefits of Margin Trading Facility

Higher Buying Power

Margin Trading Facility enables investors to purchase more shares than they could using only their available capital.

Quick Access to Market Opportunities

Investors can take advantage of short- to medium-term opportunities without arranging the full investment amount.

Digital Trading Experience

Most brokers provide MTF through their online trading platforms, making it easy to place and monitor orders.

Benefits of Loan Against Shares

Access to Funds Without Selling Investments

Investors can raise funds while continuing to hold their long-term investment portfolio.

Potential to Continue Earning Corporate Benefits

Depending on the terms of the pledge, investors may continue to receive benefits such as dividends and bonus shares.

Suitable for Personal Liquidity Needs

LAS can be useful for meeting short-term financial requirements without liquidating investments.

Which Option Should You Choose?

Choose Margin Trading Facility if you:

Want to increase your buying power.

Plan to invest in additional stocks.

Understand leverage and market risks.

Can manage daily interest costs.

Choose a Loan Against Shares if you:

Need funds without selling your investments.

Have an existing portfolio to pledge.

Want to retain long-term ownership of your shares.

Need liquidity for purposes allowed under the lender's terms.

Factors to Consider Before Using MTF

Before using Margin Trading Facility, consider:

Compare MTF charges per day across brokers.

Understand the annual interest rate.

Check eligible stocks under MTF.

Estimate borrowing costs using an MTF calculator.

Ensure you can manage margin requirements and market volatility.

Conclusion

Both Margin Trading Facility and Loan Against Shares can help investors access additional funds, but they are designed for different purposes. MTF is suitable for investors looking to increase their market exposure by purchasing eligible stocks using broker funding, while Loan Against Shares is more appropriate for investors seeking liquidity without selling their existing portfolio.

Before choosing either option, compare the MTF charges per day, overall interest costs, eligibility criteria, and associated risks. Selecting the right financing option depends on your investment objectives, financial requirements, and risk appetite.