MTF vs Margin Pledge: How They Differ and What They Cost

Published 2026-11-02 · Aadarna Stock Broking Pvt. Ltd.

Many new investors hear two terms that sound alike: MTF and margin pledge. Both involve pledging shares and both give you more buying or trading power than your cash alone. They work in different ways, though, and they cost you in different ways.

This article explains each one, the interest and charges involved, what happens when there is a shortfall, and why borrowed money makes losses bigger. It is for education only. It does not suggest that you use either facility.

What is the Margin Trading Facility (MTF)?

MTF is a facility where your stock broker pays part of the price when you buy shares in the cash (delivery) segment. You pay the rest, called your margin. The part the broker pays is called the funded amount. In effect, it is borrowed money.

The shares you buy this way are pledged in favour of the broker as security for the funded amount. You will usually be asked to authorise this pledge through the depository (CDSL or NSDL). In India, MTF is governed by SEBI Circular CIR/MRD/DP/54/2017 dated June 13, 2017.

• Only certain shares are eligible for MTF, as per exchange and broker lists.
• You usually need to activate MTF separately and accept its terms.
• You pay interest on the funded amount for as long as you hold the position.

What is a margin pledge?

A margin pledge is different. Here you already own shares or mutual fund units in your demat account. You pledge them to get collateral margin, meaning extra margin you can use for trading, for example in derivatives.

Since September 1, 2020, stock brokers can accept securities as margin from clients only by way of pledge in the depository system. The shares stay in your demat account but are marked as pledged. You confirm the pledge through an authentication step sent by the depository.

You do not get the full market value as margin. A haircut, a percentage cut set according to exchange and clearing rules, is applied first. Say your pledged shares are worth ₹1,00,000 and the haircut is 20%. You would get ₹80,000 as collateral margin. This is a round hypothetical number only. Actual haircuts differ by security and can change.

How do the costs differ?

The main difference is this: MTF is a funded position, while a margin pledge is collateral. That changes how you pay.

• MTF interest: you pay interest on the funded amount, usually calculated daily, for every day you hold the shares. The longer you hold, the more you pay, whether the share price rises or falls.
• Pledge charges: pledging and unpledging may each carry a charge per request. Since you are not borrowing to buy the pledged shares, there is no MTF-style interest on them.
• Other costs: normal brokerage, statutory levies and depository charges apply to both. Some charges may also apply if your account has a margin shortfall.

All rates and charges are as per Angel One's prevailing tariff. Read the tariff on angelone.in before you start, because these costs reduce any gain and add to any loss.

What happens if there is a shortfall?

A shortfall means the margin in your account falls below what is required. It usually happens when prices fall.

• In MTF: if the shares you bought lose value, your margin may no longer cover the requirement. You will receive a margin call, a request to add funds or securities. If you do not top up within the time allowed, the broker may sell some or all of the MTF shares to recover the funded amount. Any remaining loss is yours.
• In a margin pledge: if pledged shares fall in value, your collateral margin shrinks. If your open trades then need more margin than you have, you are in shortfall. The broker may close your positions, and in some cases the pledged shares may be sold (called invoking the pledge). Exchange penalties for margin shortfall may also apply.

Sales caused by a shortfall happen at the market price at that time, which may be far below what you hoped for. Ask Angel One how margin calls are sent and how much time you get to respond.

Why does leverage magnify losses?

Leverage means controlling a larger position than your own money would allow. It works in both directions.

For example, say you put in ₹50,000 and the broker funds ₹50,000 under MTF, so you buy shares worth ₹1,00,000. If the price falls 20%, the shares are worth ₹80,000. You still owe the ₹50,000 funded amount, so your own money is now ₹30,000. A 20% fall in the share has caused a 40% loss on your money, before interest and charges. With a bigger fall, you could lose more than you put in.

Pledging shares to trade derivatives adds two risks at once: the trades can lose money, and the pledged shares can also fall in value. A SEBI study dated January 25, 2023 (FY 2021-22 data) found that 9 out of 10 individual traders in equity F&O incurred net losses. Pledging or using MTF reduces the cash you need upfront. It does not reduce or remove market risk.

What should you check before using either?

1. Read the MTF terms and the rights and obligations you are asked to accept.
2. Check the interest rate, pledge and unpledge charges, and any shortfall-related charges in Angel One's tariff.
3. Find out which securities are eligible and what haircut applies to each.
4. Ask how margin calls are communicated and the deadline to meet them.
5. Ask when and how positions or pledged shares may be sold if you cannot meet a shortfall.
6. Check every pledge request on the depository's authentication page before you approve it, and review your CDSL or NSDL statements regularly.

Frequently asked questions

Do I still own shares that I pledge?

Yes. Pledged shares stay in your demat account and you remain the beneficial owner. They are marked as pledged, so you cannot freely sell or transfer them until the pledge is released. If a shortfall is not met, they can be sold.

Can I sell shares bought under MTF whenever I want?

Generally, yes. You can usually place a sell order for an MTF holding like any other delivery holding. The sale amount first settles the funded amount, interest and charges, and the balance comes to you. Ask Angel One exactly how this works for your account.

Does pledging shares make trading less risky?

No. Pledging only changes how you provide margin. Your trades carry the same market risk, and a fall in the pledged shares can create a shortfall too.

Can Aadarna tell me whether I should use MTF or a pledge?

No. Aadarna is an Authorised Person of Angel One Ltd. and a mutual fund distributor, not an investment adviser. We can explain how these facilities and their charges work, and help you find the official terms.

Sources

• SEBI – circulars and investor studies
• SEBI – investor education website
• CDSL – depository services and pledge
• NSDL – depository services and pledge
• Angel One – tariff and MTF terms

Risk disclosures on derivatives

• 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
• On an average, loss makers registered net trading loss close to ₹50,000.
• Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
• Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.

Source: SEBI study dated January 25, 2023 on "Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment", wherein Aggregate Level findings are based on annual Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.