For example, let’s say I bought a share for Rs. 100 using 5x margin. I pay Rs. 100, and the broker funds Rs. 400. The next day, the stock goes up by 10%, so the new value is Rs. 550. According to Kotak’s FAQ, I would still be charged interest on the full Rs. 400 and not Rs. 350 (which would be the margin amount after accounting for the Rs. 50 gain).
Are there any brokers who calculate interest based on the net outstanding margin (after gains/losses), rather than the initially availed margin amount?
I don’t think any broker allows this because the profit is just unrealised paper gains. The broker is still funding you ₹400, so they’ll charge interest on the full ₹400 not the adjusted amount. Simple as that.
When you purchase a stock on MTF, the stock has to be mandatorily pledged. So the entire stock is pledged with the broker, which means the unrealised profit is also part of the pledged value. Hence the query.
For eg, imagine I bought the stock with Rs. 100x5 with MTF and it went 80% up.
Now I can convert the stock to CNC and avoid any further interest. But if I choose to not convert the stock and keep it in MTF, I’ll continue to incur charges. This seems counterintuitive as I can fund my MTF amount through profit and don’t require MTF. But I’ll continue to be charged as long as I don’t close the position.