In the current dynamic market, margin trading has been considered essential for active traders in India as it enables them to borrow funds from the broker to control larger positions. Margin trading enables traders to boost their purchasing power by leveraging their existing securities.
Through this, market players get an opportunity to utilise their existing investments and make profits from their investment without any additional money. The major determinant here is the interest rate paid by traders on the borrowed amount because it impacts the net returns and can even erode returns.
There are several brokers who provide MTF features at competitive interest rates, and hence, the primary determining factor for traders is to find the broker who provides the lowest MTF interest rate and aligns with their objectives.
What is the margin trading facility?
Margin Trading Facility (MTF) enables market participants to purchase more stocks than their available cash balance would otherwise permit. With MTF, traders pay only a fraction of the total order amount upfront, and the remaining balance is funded by the broker.
This facility can significantly increase a trader’s buying power, often by up to 4x or even 5x, depending on the broker. The borrowed amount accrues interest, which is calculated daily on the funded value. Now, we will explore some of the brokers in India that offer the lowest MTF interest rate.
Key brokers and their MTF interest rates in India
In India, there are several brokers who provide a margin trading facility with different interest rates and terms. The following is an overview of some brokers with the lowest interest rates for MTF:
Dhan
Dhan has one of the most competitive MTF interest structures in India, with a five-slab rate system depending on the amount funded. Dhan’s MTF interest starts at 12.49% per annum, or 0.034% per day, on the amount invested up to ₹5 lakh. From ₹5 lakh to ₹10 lakh, the rate rises to 13.49% p.a., with the highest slab at 16.49% p.a. for amounts above ₹50 lakh.
This slab structure benefits smaller traders with the lower MTF interest rate on smaller borrowed amounts. Dhan offers a leverage of up to 4x on 1700+ stocks with an unlimited holding period for MTF positions.
m.Stock
m.Stock offers MTF interest rates beginning from 6.99% per year, which is equivalent to 0.0192% per day, for amounts over ₹5 crore. For financing between ₹25 lakh and ₹5 crore, the interest rate is 9.99% per year, and for amounts under ₹25 lakh, the interest rate is 14.99% per year.
They provide up to 80% funding on over 1,100 stocks, and their MTF position is available for an unlimited period. In addition, it offers ₹0 cash MTF orders using pledged securities and no subscription charges.
ICICI Direct
ICICI Direct provides a competitive interest rate of 9.65% per year, which is as low as 0.0265% per day, for MTF borrowed amounts. Interest payment starts on the exchange pay-in date (T+1) and continues until the T+1 day of settlement after the position is squared off.
ICICIDirect offers leverage up to 4x on 1400+ stocks, which enables the market participant to maximise buying power up to 4 times. It allows market participants to hold their positions for up to 360 days.
Kotak Neo
Kotak Neo offers a nominal interest rate as low as 9.69% per annum, or 0.027% per day, particularly under their Trade Free Pro Plan. The interest rate can vary based on the brokerage plan chosen. They allow leverage up to 5x on 1300+ shares.
The holding period for MTF positions with Kotak Neo is unlimited, although interest charges apply for the duration the positions are held. However, on Kotak Neo, it is mandatory to pledge stocks purchased under MTF on T-Day through the link received from NSDL.
Paytm Money
Paytm Money has lowered its MTF interest rate on the first slab (up to ₹1 Lakh) to 7.99% per annum, and 9.99% per annum on the second slab (between ₹1 Lakh and 1 Crore) and 8.99% per annum on the third slab (above 1 Crore). It offers leverage of up to 4x on 1200+ stocks.
Paytm Money emphasises a transparent brokerage structure, where traders pay 0.1% of the trade value for MTF orders exceeding ₹20,000, while there is a maximum brokerage of ₹20 for orders less than ₹20,000.
Zerodha
Zerodha charges a fixed MTF interest rate of 0.04% per day from T+1 day until the stocks are sold. It offers leverage of up to 5x on 1500+ stocks. The Zerodha offers up to ₹50 crore through MTF and allows holding of positions for unlimited periods. Zerodha imposes a brokerage of ₹20 or 0.3%, whichever is lower, on every MTF order. Traders can avail the MTF feature by logging into the Kite platform.
The bottom line
When selecting a broker for Margin Trading Facility in India, it is important to pay attention not only to the interest rates that are offered but also to the overall cost structure, which includes the brokerage fee and other expenses.
As different brokers offer different interest rates for varied borrowed amounts, traders should evaluate their individual trading volume, frequency, and capital requirements to determine which broker provides the most cost-effective MTF funding for their specific needs.
