Amid the recent stock market carnage in Korea, Zerodha’s co-founder and chief executive officer (CEO), Nithin Kamath, warned that rapidly expanding margin trading facility (MTF) books in India could aggravate a market correction through margin calls and forced selling. He highlighted the risks posed by non-derivative, midcap and smallcap stocks, which may hit repeated lower circuits and become difficult to exit.
India’s MTF book stood at about ₹1.42 lakh crore in early August 2026. MTF has gained significant popularity over the past three to four years. The book stood at ₹24,920 crore in FY23. “The MTF book has grown between five and six times in about three years,” points out Shrey Jain, chief executive officer (CEO), InCred Money Broking.
“Higher retail participation, an increase in the number of brokers offering this facility, and greater awareness of the product have driven its adoption,” says Tejas Khoday, co-founder and CEO, FYERS.
India’s MTF book remains modest by global standards. “The US margin debt exceeds $1.5 trillion (₹142.83 trillion),” notes Khoday.
Under MTF, the investor pays part of the purchase value while the broker funds the balance. “The investor may have to provide a margin of about 25 per cent or more, depending on the stock,” says Jain.
The investor pledges the shares purchased through MTF as collateral. The broker charges daily interest on the funded amount until the investor repays it or sells the shares.
MTF enables investors to take delivery of shares without paying the entire purchase value upfront. “It provides leverage in the cash market,” says Khoday.
Investors can take larger positions in high-conviction ideas without liquidating their other holdings.
“MTF can be obtained faster than a loan against securities through a bank or non-banking financial company,” says Jain.
Risks during a sharp correction
MTF magnifies both gains and losses. “The effect depends on the margin prescribed by the broker,” says Trivesh D, chief operating officer (COO), Tradejini.
A fall in the value of funded securities may cause a margin shortfall. “The broker’s risk-management framework determines the additional margin required,” says Trivesh.
Investors must provide additional margin within the stipulated period. “Brokers may liquidate positions if investors fail to meet the margin shortfall,” says Trivesh.
A broker’s margin-call and liquidation policy determines how it carries out the process. “Insufficient liquidity in a stock can deepen losses during liquidation,” says Jain.
Brokers may also charge penal interest if investors fail to meet margin obligations within the specified period. Penal interest rates vary across brokers. “Brokers disclose the applicable penal interest rate in their MTF policies and agreements,” says Trivesh.
Greater risk in non-F&O, smallcap and midcap stocks
Smallcap and midcap stocks generally become more volatile during market stress. Sharp price movements can quickly erode an investor’s available margin. Smallcap stocks may also hit lower circuits. “This can prevent investors from exiting their positions,” says Trivesh.
Stocks outside the futures and options (F&O) segment, he notes, tend to be relatively less liquid during a period of market stress. As a result, brokers tend to apply more conservative funding norms to these stocks to protect against such risks.
Interest on the broker-funded amount is the primary cost of using MTF. Brokers generally calculate interest daily, even if the stock price remains unchanged. Investors must also factor in brokerage, statutory charges, pledge-related charges and possible margin-shortfall charges.
“The principal cost is the interest charged on the broker-funded amount,” says Vikas Singhania, CEO, TradeSmart. A longer holding period increases accumulated interest and raises the price that the stock must reach before the investor can make a profit.
Experts consider MTF more suitable for experienced investors who understand leverage and have a clear exit strategy. Users should prefer liquid stocks, avoid concentrating their exposure in a few counters and maintain sufficient cash buffers to meet margin calls.
“MTF works best when investors use leverage selectively,” says Khoday.
New investors, those with uncertain cash flows and investors who cannot arrange funds at short notice should avoid MTF. Long holding periods can also increase the interest burden and make it difficult to recover losses after a decline.
MTF rules you should be aware of
- Sebi permits MTF only in eligible Group I shares and equity exchange-traded funds
- It prescribes upfront margin and maintenance margin based on the risk of each security
- Brokers must collect mark-to-market losses
- They may liquidate positions when margin shortfalls are not met
- Funded shares must be held through a pledge mechanism
- Broker-level funding, broker indebtedness, and client-wise exposure are all capped
- Sebi does not prescribe a single leverage multiple for every stock
- Effective leverage depends on the prescribed margin for the security
- Brokers may impose stricter limits through their risk policies
 "Using MTF? Keep sufficient cash for margin calls, avoid forced selling")
