Securities can be paid for in cash or a mix of cash and some borrowed funds. Buying with borrowed funds permits the investors to buy a security at a good price at a good time. This act of borrowing money from a bank or a broker to execute a securities transaction is referred to as using "margin". As of now in India, only brokers are allowed to provide the margins. Traders can put up part of the payment. Brokers borrow the remaining funds from a moneylender with whom they would lodge the shares as collateral for the loan. The safety of this mechanism rests on the risk management capabilities of both the stockbroker and the lender.
However, recently SEBI has proposed to RBI that banks could lend to exchanges on margin trading and the exchanges could provide assistance to brokers. When this happens, the volumes should increase in the markets making them more vibrant.
Further detailed information can be read on various AMC websites like Reliance Mutual Fund, HDFC Fund, SBI Fund, and others.
However, recently SEBI has proposed to RBI that banks could lend to exchanges on margin trading and the exchanges could provide assistance to brokers. When this happens, the volumes should increase in the markets making them more vibrant.
Further detailed information can be read on various AMC websites like Reliance Mutual Fund, HDFC Fund, SBI Fund, and others.
