Settlement of Funds & Securities through Quarterly Settlement is an initiative by SEBI to ensure brokers do not misuse funds and/or securities kept with him.
Assume you’d kept Rs.25,000 with your broker and not traded for more than a year. There are chances that some brokers may start utilizing these funds by trading on your account, resulting in brokerage revenue for themselves. One fine day you realize that all of the 25,000 you had kept is gone either as trading losses or as brokerage to the broker.
In order to safeguard the interest of the investor/trader and to not let the above scenario happen, SEBI mandated all stock brokers to reverse any funds that are lying in the trading account back to the Bank account of the client. This Quarterly settlement has to be done for both funds and securities of the clients. SEBI mandates that this be done once in a period of 90 days.
SEBI’s rule is that any account where the balance is less than 10,000 need not be settled meaning the funds needn’t be transferred back to the client’s account. Also it allows the broker to block additional 125% margins for any open position held by the client and then reverse any excess funds lying in the account.
I invest using Coin, I have set up a monthly fund transfer to my Zerodha account and then weekly SIPs.
Zerodha sent me some money via NEFT and it shows up as Quarterly Settlement Payout on the account summary.
Can someone help me understand what this is? Is this to be declared on ITR as a gain or is it just transfer of extra funds in my trading account to my bank?
So even though client is active and trading everyday …broker has to transfer funds and collateral securities back to client ?
I think only funds need to go back …if have client has pledged securities…it don’t have to go back because technically they are in use correct?
if securities were just lying free in broker’s pool account than it would go back …correct me if i am wrong @siva@Bhuvan@maddy_Des@nithin
You have pledged those shares for margin, if you haven’t utilized the margins then broker is obliged to unpledge those shares and send them back to clients Demat.
ok lets say collateral margin is 5 lac and about 3.40 lac is used in options sell position (so margin is used) so broker needs to transfer back only 5-3.4= 1.6 lac worth of securities ? or 2.25 times rule apply?
Put most of your capital in Overnight/Liquid funds and pledge that to trade. As bonus, you get some extra returns too.
Keep some in cash balance to cover your drawdown, perhaps a bit more.
On settlement, pledged portfolio is not affected. Also pledging cash equivalent instruments mean you don’t have to deal with 50% margin issue.
Settlement by Z is done very fast. I get money in bank before 8 am. So your cash balance = DD money will be in bank and you can send it back before market opens. RTGS works very well. Even if there is some delay by chance, you still have pledged balance available and whole day to transfer back money.
Point 1 doesn’t work for option buying. It can only be used for option selling. So I keep withdrawing excess capital to my bank account where I will get savings bank interest. I haven’t forgotten the days when the amount got withdrawn from my trading account for settlement but didn’t land upon my bank account before market open. Not an isolated case and has happened for my fellow traders as well.
Unless zerodha guarantees that settled funds would be back in my account by 8.00 AM there is no going back to excess funds in trading account.
yeah with options, you likely don’t need full capital for margin so no need to keep it with broker. For stocks intraday, and i think also for Futures intraday/overnight above should work fine.