I can pledge ETF’s like Liquid bees, why can’t I do the same for Mutual Funds?
There are 2 reasons why you cannot pledge mutual funds:
Many funds have a lock-in period. So if someone has pledged and taken the margin to trade F&O and makes a loss, we will not be able to sell the mutual fund to make good of those losses.
Mutual funds have different schemes, like growth, dividend, dividend payout, dividend reinvestment, etc. When a fund is pledged to us, it will be as good as we the broker own it. Whenever any action is applied on the fund (say a dividend), it has to be passed onto the investor. It is a logistical nightmare to support this since there are thousands of mutual fund schemes out there.
It is on our list of things to do, to allow pledging of mutual funds (no lock-in funds).
Following solutions can be considered against those roadblocks
Lock in period is applicable only on ELSS and special funds like retirement and child plans. These can be excluded from list of funds eligible for pledge. Other fund only charge an exit loan.
Again restrict pledge only to growth options.
Haircut % on different mutual funds can be based on risk category as per SEBI. This will eliminate need to evaluate votality of each scheme.
There are exit loads as well so unitholder may not get the full amount if it is redeemed before the lock-in period matures.
But if would be better if it is allowed for liquid funds. Or at least allow if person redeems the MF and buy Stocks for delivery as he would receive the fund before T+2.
@nithin I have lakhs of rupees lying on trading account without any returns. As an FNO trader how to save my capital from depreciating on inflation
invest in liquid bees, then pledge…
If inflation is the concern, Gold ETFs are an option. I hope they can be pledged as well.
Dose ZERODHA allow their Clint’s to pledge there mutual funds in there coin account and take margin to utilizeb for F&O trades.
I specifically want to know for mutual funds ,not for stock holdings .