Safety of money in case of broker going bust

Suppose a broker incurs huge amount of loss in broking business due to any reason and is unable to fund that loss by itself, what will happen to following cases

  1. Is Cash parked with broker by me at risk.
  2. are Shares held in demat account by me with broker at risk
  3. Will there be change in situation if the shares are pledged with the broker.

thanks @neha1101. I have gone through above threads. However still confused.

Question still remain “Will demat holdings, whether pledged or not, be safe in case of broker going bust?” Confusion stems from the fact that broker is the one who manages DEMAT accounts because of it being Depository Participant (DP).

Can it be assumed that those holding shares with broker are much safer than those having cash balance with broker? or it is better to have multiple brokers in case equity investments run into crores.

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Obvious, isn’t it?

When you are talking 8 or 9 figures, to think about charges in thousands from high charging brokers in unnecessary.

Discount brokers are for retail, not for such figures.

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There is PoA, so OP has a point.

If you are investing in Crores better to go with more than one broker. Also full time brokers are suggested. since yearly charges will not matter a lot in this case

As the stocks are held at the depositories, how does it matter which broker you are dealing with or am I missing a point here. CDSL or NSDL who are the depositories who hold our shares and not the brokers. So getting confused as to why you should have multiple brokers if you are dealing in crores. Even if you are pledging the shares, the pledge is noted at CDSL and NSDL where your demat account is maintained. So how does it matter if the broker goes bust. I do understand that there will be procedural issue but I do not think you will lose on your investment.

I chose Icici Direct because, my float money will remain with my bank account with Icici bank and not at the pool account of the broker. I never liked this idea of giving them the money. With icici Direct, when I do a transaction, my account with Icici Bank gets debited. Apart from having control of my float money, I get nominal interest rate which SB account gives too.
I was also told by another user @Anon0 that when you use the pool account of a broker, there is a restriction of RTGS limit of 10 lack per day to transfer. Hence if you invest in huge amount and wish to transfer 20 or 30 lacks, you will not be able to do the same to the pool account in a single day. However, with Icici Direct, there is no such limitation.

I think zerodha has the same concept 3 in 1 account with IDFC bank as well.

Disc: Not an expert at all.

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We will not lose our investment but because of procedural issues it might take some time to get our entire money.

My points is “No harm in having 2 demat accounts. I don’t see maintenance is a problem unless you are super busy.”

Yes having atleast 2 demat accounts is better, especially if you deal with F&O - to mitigate executional problems.
Also, its not about ‘crores’ - Whatever your capital, better to diversify holdings.

Zerodha does not have such restriction.

Eventually, I would also like to trade with another broker to diversify, but so far hard to find anyone like Z - funds safety / stability / good stable api / pledging options / wide list of stocks with leverage. 75-80% of my capital is pledged at probably higher rate vs bank interest ( overnight rate is 6 now ) + will have indexation through LTCG.

What funds do you invest in?

Only overnight funds so far. Spread into multiple funds to avoid fund specific issues.

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So you invest in overnight funds in demat form and then pledge these funds for your trading, so when do you unpledge them? How often do you pledge and unpledge them? And irrespective of the number of time you have pledged and unpledged the funds technically are considered as invested so you avail LTCG?

It is not Zerodha restriction. It is customer’s bank restriction. In all banks in India there is a per beneficiary and per day cap for transfer of funds through RTGS. The limit range between 10l to 15l. This is for retail customers. So when there is such a limit, how will a customer fund the pool account of zerodha with 20 lacks in a single day.
Yes it is possible if he has multiple bank.

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I don’t unpledge them. Whats the need ? Pledging provides 90% margin which i use to trade intraday. Cash balance takes care of Drawdown. So process is that few times a year once capital has increased enough, move some to Mutual funds and keep 15-20% in cash

The daily limit is far higher (1Cr) in ICICI but we have to increase the default 10L in website somewhere. Beyond that, yes probably will be an issue. Also on some bank holidays, limit is set to 10L, but can do it next day. RTGS is very fast, money in Z within few minutes usually.

Biggest issue with Interactive brokers is this, moving money to and fro is very slow. Settlement is too disruptive.


Yes once they are credired to cdsl or nsdl they are safe

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And technically, despite the pledge, MFs are considered as invested and as you will not sell, you get indexation benefit after 3 years?

As far as i know, yes. Since funds always stay in my demat account, after 3 years LTCG should apply. In any case, primary reason for this is to manage settlement related issues.

Could be wrong, CA would give clear answer.

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And no margin call like scenario has happened with you as you have stop losses?

As i said, 15-20% of capital is kept in cash. Overall drawdown should be lower that this. If i get drawdowns greater than that then will need to sell some pledged funds or bring in capital. So far has not happened yet, and hopefully through diversification + perhaps some risk reduction in future, this will stay like that.

Stocks available leverage is always 5x. Stock futures intraday margin requirements also seems stable enough for my use case and anyway i use much less than 5x overall. Once capital grows, i will look at reducing leverage further, so margin call should never really be an issue. Might change if i start selling options …

This works for my systems which are in intraday so far, someone else may need to manage more actively in which case gains from debt funds will be taxed at slab rate. Overnight funds are considered cash equivalents so even if trade futures overnight, 50% rule wont apply.

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