Assume I pledge liquid funds worth 5 lacs and the collateral margin after haircut is 4,50,000. I keep using this to trade through out the year. Say at the end of a years time the liquid fund value has appreciated to 5.25 lacs. Will the collateral margin be proportionately increased automatically? If yes, is the value increased daily/weekly/monthly?
The pledge form says " * Interest of 0.05% per day on any debit balance." what does this mean?
If a trade where I’m writing options requires a margin of say 5 lacs and my collateral margin is 4.5 lacs. Would the system first use the collateral margin and then fulfill the shortfall using cash margin?
The collateral value will change according to NAV.
If your account results in debit balance, ie. The cash in your account goes in negative there is interest charged at 0.05% per day.
Also, for overnight positions as per exchange, minimum 50% margins should be funded in cash and remaining 50% from collateral. If you don’t have enough cash in your account to meet this requirement then also you will be charged interest of 0.05% per day.
Eg. In your account, you have 50k cash and 2 lakhs in collateral margin.
You are taking overnight position which has margin requirement of 2 lakhs, of this minimum 1 lakhs should come from cash and remaining from collateral.
Since you only have 50k in cash and aren’t meeting 1 lakhs cash requirement, remaining 50k will be funded from collateral, on this there will be interest charged at 0.05% per day.
PS: Liquid Mutual Fund’s, Liquid ETF’s are considered as cash equivalent, you can check this list for more.
If you have pledged these securities for margin, this 50:50 Cash - Collateral requirment doesn’t apply.
You can take the trade, but as I mentioned above for overnight positions minimum 50% of margins should come from cash and remaining 50% from collateral. As you will be using 2 lakhs extra collateral, you will be charged interest at 0.05% per day on this.
If you have margin recieved from pledging Liquid Mutual Fund’s or Liquid ETF’s, since these securities are considered cash equivalent, this 50:50 rule won’t apply here.
There is no interest for using collateral margin. However, for overnight F&O positions, you need to maintain minimum 50% margins in cash or equivalent and remaining in collateral margin. If you use collateral margin > 50% then interest will be applicable at 0.035% per day on excess collateral used.