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Pledgeable mutual funds are offered as collateral to get Collateral margin for trading.
While pledged, the units remain in your demat account, and you will continue to earn returns, but they are temporarily marked as collateral in the clearing corporation. The Collateral margin will be available for trading after the haircut as prescribed by the exchange. To know the haircut as per the exchange, click here.
For example, you invest ₹1,00,000 in a liquid fund.
- You pledge it with your broker.
- If the haircut is 10% then, after the haircut, you will get ₹90,000 as collateral margin.
- You can now use this collateral margin to trade in Intraday, Options Selling, and Futures. without redeeming your mutual fund.
(Note: Based on the RMS policy, you have to maintain 50% cash collateral to use the collateral margin for trading)
Which Mutual Funds are pledgeable?
- Liquid funds
- Gilt Funds
- Overnight funds
- Debt funds
- Equity funds
To make it easily accessible for identifying the pledgeable mutual funds while buying itself we have introduced the features in our Novo application.
How to purchase pledgeable mutual funds in Novo?
- Log in to the Novo platform with your trading credentials.
- Navigate to the Mutual Funds section.
- Use the built-in filter option to find pledgeable securities.
(Choose the Pledgeable option from the filter and choose between Cash or Non-Cash Option, and click apply.)
- Select a suitable fund accordingly
- Enter the desired investment amount and make the payment
- Mutual fund units will be credited to your demat account after the settlement cycle.
The Pledging process
Once the mutual fund units are credited in your demat account, you can initiate a pledge request:
- Access the Pledge section in the wall platform.
- Select the mutual fund units to be pledged and submit the request.
- Confirm the pledge via CDSL authentication using the OTP received.
Upon successful confirmation from the Clearing corporation, Collateral margin will be available on your trading account.