If CAT 3 AIF is the way, why not many offer that products?.. is it because of the 2x NAV without considering netted positions? since most of the traders trade without NBFC license and CAT 3 AIF in company or LLP setup?
Getting the license is tough.
Not very efficient in terms of taxes, especially if you trade derivatives.
And you need a minimum of 20 crores, with at least 1 crore per person.
An alternative way could be to setup a private ltd company and become a trading member of NSE under alpha category.
Initial deposit requirement is 25 lakhs and base networth of 1 crore. If u wish to have higher secrecy of trades, then becoming self clearing member would be great, the deposit and networth requirements would increase to 75 lakhs and 5 crores respectively.
There would be compliance burden in this approach too but I think it should be less than the AIF route.
If 20-25 investors could put up atleast 10 lakh each, then this should work with much less capital requirement vs AIF approach.
I remember reading that the 50:50 NBFC rule wouldn’t apply to members of a stock exchange as they be governed by SEBI not RBI.
I have a question.
Suppose someone trades on Zerodha through a private limited company (using this method or any other available route).
Assume the company has ₹100 crore in trading capital. With ₹100 crore, it could sell roughly 2,80,000 quantity of NIFTY, which is about ₹720 crore in notional exposure.
Now assume NIFTY gaps up or down by 20%. The total loss would be around ₹144.06 crore, so the Zerodha account would show a negative balance of ₹44.06 crore. In that situation, who is responsible for paying the remaining ₹44.06 crore, assuming the company has no other assets?
- Would Zerodha absorb the loss and not pursue the owners/directors?
- Or would Zerodha pursue recovery from the directors/promoters personally (outside the company), using their private capital? @siva
If this happened in an individual account, Zerodha would likely ask the individual to pay the ₹44.06 crore since it’s a personal liability. But how does it work for a private limited company?
If trading via a Pvt Ltd is allowed, I’m considering putting only ~10% of my capital into the company and selling options with the maximum allowed leverage (around 7×). If a black-swan event happens, I would lose that 10% capital; otherwise, there’s a good chance of earning strong returns.
I’m considering doing this if the RBI removes the NBFC requirement and of course Zerodha is 100% fine with this scenario. 20% gap up/down is very rare, as long as Zerodha can guarantee my personal assets are 100% safe.
AI GPT gave this answer, is it true?
" If this black-swan event happens, Zerodha pays the exchange first, but they will absolutely sue the owners personally. You cannot use a Pvt Ltd structure as a “get out of jail free” card to dump leveraged trading losses onto a broker. The courts will pierce the corporate veil, and your remaining 90% of private capital will be seized to pay the debt."
The corporate veil is lifted if you are abusing the company structure in the view of the courts. Zerodha or any stockbroker will want to pursue recovery in case a client has defaulted, and this will go to court. However, there is no guarantee that the court will tap your personal assets.