Can I pledge Mutual funds for trading F&O?

I can pledge ETF’s like Liquid bees, why can’t I do the same for Mutual Funds?

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There are 2 reasons why you cannot pledge mutual funds:

  1. 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.

  2. 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).

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@AkshayAtur
Following solutions can be considered against those roadblocks

  1. 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.

  2. Again restrict pledge only to growth options.

  3. Haircut % on different mutual funds can be based on risk category as per SEBI. This will eliminate need to evaluate votality of each scheme.

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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

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invest in liquid bees, then pledge…

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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 .

@nithin @siva can I pledge units of mutual funds bought from the respective fund house and not from coin app with Zerodha? I will get the units converted in Demat form and credited to my Zerodha linked CDSL account.

SEBI has changed the entire pledging process which goes live from Aug 1st (securities when you pledge, remain in your demat itself). Once this happens, we intend to allow pledging all types of securities as it is easier for us to manage it. So yeah, by then if you can have this credited to your demat, it will be possible. Btw, all MF which have lock-in can’t be pledged (ELSS).

Sir,
Earlier you said it is live from July 1st

SEBI has postponed most of these deadlines due to the lockdown.

Few questions:

  1. Once we pledge shares, can we sell them and then place request to unpledge. Eg. If we sell on Monday, and place an unpledge request, is that possible?

  2. If we maintain 50% liquid mutual fund and 50% shares as margin, will entire m2m credit be allowed to be withdrawn on t+1.

  3. How will 1 change once the new framework is in place. Will zerodha consider limit for shares within the demat account?

  1. I don’t think so. We are still waiting for clarity on this.
  2. Yeah.
  3. No, there will be a new pledging mechanism. We will build an interface where you request a pledge by entering an OTP. Once the pledge is confirmed, you will get the limits. This OTP will be sent by CDSL.
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Dear Nithin,

I didn’t get point 1. I mean for selling shares do I need to unpledge and wait till next day before I can place sell order.

Also, is the 50:50 thing common across mcx, nsefo and currency?

And once i pledge a share or liquid fund, is it common across above 3 segments or I have to provide separate for each segment,

Thanks

  1. Yes. Unpledge and then sell. Like I said, we still are not sure operationally how the new pledging works. Maybe there will be a way to sell it even if it is pledged. We will have to wait for clarity.

  2. Margin from pledge can be used only for NSEFO and currency.

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Hi,
I want to know list of MF for pledging as mentioned in your google drive will changed/removed every month?
(https://docs.google.com/spreadsheets/d/1vRI4NKpJ-3mnOWxUhSRMSQD5txy8QNumzSQrdfGKyL0/edit#gid=15947263)

Also please suggest can I pledge Index fund for collateral margin?
Thank you,
Regards,
Prabhakar

Yes, They Update the sheet on timely basis.
I suppose Index fund is not mentioned in the sheet, so it’s irrelevant to ask. So the answer is NO for Index Funds.

But you can Pledge Index fund ETF’s . Which is NIFTYBEES

That list is updated regularly. You can’t pledge Index Mutual funds currently though you can pledge Index ETF’s like NiftyBees, BankBees etc. you can check the sheet for more info.

Also, SEBI is going to introduce a new pledging mechanism from August 1. @Siva can give you more insight on that.

It seems today, right now 3 pm, many mutual funds are missing from the pledging list?
is this some error or something changed?