What is MTF? Are you also regretting buying shares with the help of MTF during this market decline?

Know about MTF

MTF is also called Margin Trading Facility. First of all, we need to know what Margin Trading Facility is, let us understand it with an example.

Suppose we have only ₹10000 left in our demat account but we have to buy shares worth ₹40000. In such a situation, if we have activated the margin trading facility, we will get ₹30000 from the broker, i.e. we will get. The remaining ₹30000 was obtained by availing the facility through margin trading.

You have to pledge the shares you have purchased by availing the margin trading facility on the next day or on the same day. Apart from this, the broker also charges interest on the amount provided to you by the broker to buy the shares.

Some brokers call it (e-margin) facility and some brokers call it (buy now, pay later).

How to buy shares using MTF facility

To buy shares using this facility you need to follow the following steps

1- First of all you have to open the mobile application of your broker and log in to it,

2-After that you have to search the share you want to buy,

3-After that go to the buy option to buy that share.

4-Now we have to select the product type for which we have to click on “MTF, Buy Now, Pay Later” or “E-Margin”.

5-Enter quality of shares

6-Proceed to buy

7-Now a message regarding pledge of shares will come on your registered mobile number.

8- On this you will receive a link, on clicking which you will go to the website of DSL or NSDL,

9-Enter PAN number

10-Now you will have to select the shares to be pledged, then you will have to receive OTP.

11-Enter OTP

12-You have pledged shares Successfully

How much interest will have to be paid on the amount received as MTF?

The rate of interest varies from broker to broker. It can range from 9% to 18% per annum.

The interest on the amount lent by the broker starts from day one but SBI Securities does not charge any interest for the first 23 days.

Disadvantages of MTF

At present, the kind of loss people have suffered while using this facility can be well understood because our Nifty Fifty index is currently trading 3000 points below its highest level, that is, it has fallen from 26000 to the present level. Trading around 23000 at the time

Suppose a person has an account in Kotak Securities, then the interest rate on MTF here is 9.69%. Suppose on June 2, 2024, he bought 1000 shares of Bank of Baroda whose price as per the then stock price was Rs 296. To get the benefit of this facility. He had to pay only Rs 74,000 and the remaining Rs 222,000 to the stock broker.

To calculate the interest:

Principal (P) = 222000
Rate (R) = 9.79%/year
Time (T) = 8 months = 8/12 = 2/3 years

Interest = 222000 × 9.79%/year × 2/3 years
= 222000 × 0.0979 × 2/3
= 222000 × 0.0652
= 14486.4

So, the interest for 222000 for 8 months at an interest rate of 9.79% per year is approximately 14486.

In 8 months the price of this share falls to around Rs 210, thus this person suffers a loss of Rs 86 per share. The total loss is Rs 86000 and interest of Rs 14486 will also have to be paid. In this way the loss of this person was more than Rs 1 lakh (102286). As this person invested only 74000

MTF facility is available for 1 year but here this broker must have closed this trade long ago because the broker has the right to do so, thus we can say that this person has suffered a loss of at least 80%. It must have happened because when the invested amount of the person has become zero.

We observed that the losses incurred due to the MTF facility are as follows:

1-The interest charged on MTF reduces our profit margins

2-and further increases the losses incurred in the stocks invested as well as in the borrowed capital.

3-If the price of the stock is continuously falling then the stock broker can sell the shares we have purchased.

Advantages of MTF

Suppose a person manages to find a good share even in a falling market and purchases shares using MTF. Now let us talk about a share which has given good returns even in a falling market. Bajaj Hindustan was trading at Rs 285 on June 2, 2024

And at present it is trading at or around Rs. 690. Suppose a person bought thousand shares of the company at that time, thus he made a total investment of Rs. 2,85,000. Thus, using the MTF facility, he only made an investment of Rs. 71,250. Had to do it and got Rs 213750 from the broker

To calculate the interest:

Principal (P) = 213750
Rate (R) = 9.79%/year
Time (T) = 8 months = 8/12 = 2/3 years

Interest = 213750 × 9.79%/year × 2/3 years
= 213750 × 0.0979 × 2/3
= 213750 × 0.0652
= 13953.75

So, the interest for 213750 for 8 months at an interest rate of 9.79% per year is approximately 13954.

Per share profit earned 405 and total profit earned on 1000 shares is 405000

Total profit earned after paying interest =405000-13954=391046

What precautions should be taken while using MTF?

Do not forget to pledge the stocks taken under MTF. If this is not done the broker may liquidate the position after T+7 days

2-If there is a margin shortfall, automatic repayment is triggered after four trading days. That is, if you have bought a share and after buying it it goes down, then by doing this the margin gets reduced and whatever amount is reduced in the margin, it will start being deducted from your bank account

3-.To avoid loss, one should buy those stocks which have the potential to go up in a short period. In my opinion, it is not right to hold the stocks for a very long time because over a longer period of time, your interest rate will increase and the stock will go up or down. can’t say

Conclusion

The MTF facility should be used very thoughtfully. This facility is beneficial for us only when the price of our share goes upwards. If we get very good profits by holding our stock for four to five days, then we should automatically exit the stock.

Because we do not know which way the share will go in the long run, in such a situation we may have to pay only interest.