Hello, I have a question about haircut deduction when pledging and what happens to the amount deducted. If 20% haircut is deducted, is that amount kept by broker and blocked away or given back to me as cash balance?
Assume I have 50k cash balance and 50k in NIFTYBEES holdings. If I pledge all of my NIFTYBEES and haircut is 20%, what will be my trading margin next day?
50k cash + 40k colletreal margin (20% of NIFTYBEES pledge taken as haircut) = 90k
Or…
50k cash + 40k colletreal margin + 10k given back as cash (haircut given back) = 100k
Basically my question is… What happens to the haircut amount deducted? Is it just lost in the blackhole and can’t be used for trading?
The haircut is set by the Clearing Corporation who provides the margins. This amount will be kept by the CC.
Take for example you go to a bank and pledge gold for a loan, the value of gold might be 2 lakhs, but the bank doesn’t provide you with a loan worth 2 lakhs, they will deduct some amount based on their risk perception and then give you the amount, say 1.75 lakhs. It is the same here.
this is correct. you will be able to trade with 90k. The remaining 10k will be with you in your demat only. Its just to cover the risk element.
Brokers will not touch, modify or trade your pledged entity without your permission. Only if you run into losses and then you cannot compensate it - the broker will ask to liquidate the pledge.
You can compare it like a car loan. For a car worth 10 lakhs, they will ask you to pay 2 lakhs cash and the rest 8 lakhs will be converted to loan. Your car is still worth 10 lakhs, but the banker has got the cash cushion of 2 lakhs to protect them in case you dont pay the emis.
Thank you Balaji for sharing the link
I had seen it earlier but the customer support of Zerodha told me that the haircut for liquidcase and liquidbee is 20% while in the website it shows as just 6%. I am not able to understand which is correct
a) how much charges you paid for it (brokerage, stt, transaction charges ,gst etc)
b) in how much time after pledging was the amount available to you ?
c) and in case I want to move from liquidbees to niftybees, how quickly can it be done ?
how much is Liquidbees giving you annually or what dividend is it paying you ?
it’s nothing great, slightly above 5%.
Around a year ago I too had the choice between LIQUIDBEES and LIQUIDCASE.
In the end even though LIQUIDBEES has higher expense ratio, I went with it because it had lower tracking error. Also the LIQUIDCASE fund manager’s linkedin was not very impressive, he was a young chap who didn’t seem to have had this kind of responsibility before. I may choose to switch to LIQUIDCASE eventually if expense ratio remains low and tracking of the 1D index is decent.
a) how much charges you paid for it (brokerage, stt, transaction charges ,gst etc)
iirc 80 units (value 80,000rs) had total buying charges of like 20rs. And pledging for any quantity of units is a flat fee, 20 or 30rs per instrument.
b) in how much time after pledging was the amount available to you ?
the next day
c) and in case I want to move from liquidbees to niftybees, how quickly can it be done ?
you can sell pledged stock without unpledging.
Then on next day (T+1) you’d have that money in the account and could buy other stocks.
Then on T+2 day I think the newly bought stock will land in your demat and you can pledge it (if that’s what you meant by move to niftybees).
Then on T+3 day you’ll see the new pledged amount in your collateral.
I am thinking of dividing my securities into four for pledging - Liquidcase, BharatBonds, T Bills and a litte bit of Niftybees if the market falls on Monday again
so 25% in Liquidcase, 25% in BharatBond, 25% in T Bills, and 8% in Niftybees and the rest 17% I will put in NifyBees if market falls further. If it starts going up, I will put it in Liquidcase. Does this seem ok to you ?
BTW what is tracking error and tracking of 1D index ?
so 25% in Liquidcase, 25% in BharatBond, 25% in T Bills, and 8% in Niftybees and the rest 17% I will put in NifyBees if market falls further. If it starts going up, I will put it in Liquidcase. Does this seem ok to you ?
I can’t really advise on specific trades since I’m not a RA and I also don’t know your investment goals.
All I’ll say is don’t forget to account for taxation of the various instruments in your portfolio (for example the profits in the T Bills will be STCG taxed at 20% assuming the T Bill matures within 1 year).
Thank you again for the useful information
About taxation , I guess all the securities are subject to taxation. And if one is in the 30% slab then profits from Lquidcase and Liquidbess will be taxed at that rate. But it may not be annual, only when we redeem it