How to invest this 1 crore to get maximum trading margin from pledging?

[TracerBullet]

Risk is part of reward, and sometimes risk does not compensate too.
1) Look at the 5y return of the top fund. Its negative. So this 1y return is likely some kind of pricing issue, bond may have been marked as having no value and now it does or something like that.
2) Assuming you can trade, best way is to manage money yourself + pledge safe funds to get some extra.
3) I don't think taking too much risk in debt is worth it. Open ended credit risk funds have issues too, as people with know-how can take money out before a illiquid bond is marked down. Duration risk needs expertise, but maybe can be done. ICICI all seasons has done well for quite some time ( but no guarantee that it will in future). It makes no sense to me to risk capital on these small change stuff - if you can trade.
4) Banks have some sort of RBI guarantee till 5L i think. After that your money is at risk. Risky banks will give you more returns but with the risk of capital erosion if bank fails.
5) If you are not trading with this capital, then best and easiest thing to do is have a equity+debt portfolio with some target allocation that you are comfortable with ( say 60-40 ) and then hold it for long term (10y+). Equity should give around 10-15% pa compounded ( Again, no guarantee, but India is a growing country with room to grow). Don't sell equity if market crashes, instead buy more. You invest in batches if you dont feel comfortable, SIP type if needed. Fresh income can be invested with SIP.

 

[trendtrade]

Risk is part of reward, and sometimes risk does not compensate too.
1) Look at the 5y return of the top fund. Its negative. So this 1y return is likely some kind of pricing issue, bond may have been marked as having no value and now it does or something like that.
2) Assuming you can trade, best way is to manage money yourself + pledge safe funds to get some extra.
3) I don't think taking too much risk in debt is worth it. Open ended credit risk funds have issues too, as people with know-how can take money out before a illiquid bond is marked down. Duration risk needs expertise, but maybe can be done. ICICI all seasons has done well for quite some time ( but no guarantee that it will in future). It makes no sense to me to risk capital on these small change stuff - if you can trade.
4) Banks have some sort of RBI guarantee till 5L i think. After that your money is at risk. Risky banks will give you more returns but with the risk of capital erosion if bank fails.
5) If you are not trading with this capital, then best and easiest thing to do is have a equity+debt portfolio with some target allocation that you are comfortable with ( say 60-40 ) and then hold it for long term (10y+). Equity should give around 10-15% pa compounded ( Again, no guarantee, but India is a growing country with room to grow). Don't sell equity if market crashes, instead buy more. You invest in batches if you dont feel comfortable, SIP type if needed. Fresh income can be invested with SIP.

Thank you so much @TracerBullet for sharing your views.

1) Yes that does seems to be the case, most probably. Few other friends have also warned me not to forget what happened with the bonds of ILFS, HDIL etc. over the past few years and what happened in Franklin Tempelton Funds etc. as well. So getting greedy for more returns in the Debt Funds is a serious no-no. I shouldn't ignore those risks and should invest in safer Debt Funds only. Just got a bit carried away by the mouth watering returns from those Debt Funds and therefore overlooked the risky aspects for a moment. Thanks for reminding me about this.

2) Yes, this is the main motive for sure. Because of this only, I got interested into the Debt Funds, as these are treated as Cash Equivalent for the Margin Component and it will give me the maximum margin amount for doing my personal trading. Whatever I get from the Debt Funds, would be an extra topping, over and above my individual trading returns.

3) Totally agree with this point. There have been such cases in the past, when the people with the know-how actually took out the money from such illiquid bonds, before others could get any sense of it and hence they were left holding the bag. Such risks in the Debt is just not worth it.

4) Exactly, our money is guaranteed till a maximum of 5 lac per bank account, even if it is a Bank FD or anything else. So we need to take that risk into our mind before keeping too much amount into the banks.

5) Yes, this will suite someone who has a longer term investment mentality for sure. But I am a trader by my nature, so I never really even think in terms of very long term investments etc.

I highly appreciate the time that you took to share your views on all this. Thanks a lot.

Best Regards

 

[trendtrade]

Actually I have got really confused by the presence of so many different categories in the Debt Mutual Funds, as you can see in the following snapshots -

There are just too many different type of Debt Funds to choose from and I am not being able to decide.


My only objective is to find out exact name of the Debt Fund which is present within this excel file of zerodha -
https://docs.google.com/spreadsheet...hSRMSQD5txy8QNumzSQrdfGKyL0/edit#gid=15947263

taken from this link - https://support.zerodha.com/categor...edging/articles/list-of-stocks-pledge-zerodha

Please look at the second tab of that excel sheet named "CASH COMPONENT" in which there are a total 342 Mutual Fund Schemes listed, which all have the haircut of just 10 % and therefor will give me maximum trading margin for my personal trading.

I have to select a few Debt Mutual Fund Schemes from this list of 342, which are overall safe and will give me the returns of around 6 % and then I just have to divide this 1 crore amount into these different schemes, so that I can then pledge them with the broker.

If someone could please guide me in this task, then I will be really grateful. Thank you so much.

 

[TracerBullet]

I have to select a few Debt Mutual Fund Schemes from this list of 342, which are overall safe and will give me the returns of around 6 % and then I just have to divide this 1 crore amount into these different schemes, so that I can then pledge them with the broker.

Look at overnight funds in the sheet. Current yield is around 6%, if rates dont go down going forward you should get that.
You can also look at IDFC gilt index funds 2027/28 - yield for them is around 7% now if you hold till maturity. This way you can lock rates for next 4-5 years. If rates go up, you will have some M2M losses but if you hold till maturity you should get the yield at the time of investment.
Overnight comes under cash component. I think IDFC gilt index one too. This is what i invest in/would invest in and pledge + trade.

You can also look at liquid funds, but overnight is safer and i dont think its worth it for me. Liquid is safe too, rare to get default but it has happened with ILFS.

 

[trendtrade]

I am requesting a few of the experienced and helpful members here, to please share their guidance on this, whenever they get some time - @Smart_trade , @Pradeep Narayan , @newtrader101 , @CougarTrader , @travi , @primitivetrader , @suri112000 , @curiousv


If you need any more information from my side, before making the suggestions, then kindly let me know, I will provide all the details accordingly.


Thanks a lot.

 

[mohan.sic]

Hello Friends

I have got 1 crore+ amount that is lying in my savings bank account, which is giving just 3.5 percent interest. I need to invest this amount into such instruments, which would give me the following benefits -

Safety of the principal amount that is invested.
Guaranteed minimum fixed returns on the investment.

Maximum % of this investment amount should be allowed to be PLEDGED as "CASH EQUIVALENT COLLATERAL" for getting the CASH COMPONENT of the overall Trading Margin, so that I can then use this margin for doing the investments as well as active intraday trading in the NSE Stocks, Futures and Options Segments. I do not trade into any other exchanges or instruments.


If any of you could please make some suggestions in this regard, that would be really helpful. Thank you so much for your time.

You may contact me on any of the following -

Email - [email protected]
Telegram - NiftyTrader12
Discord - trendtrade

Thank you.



PS:

For understanding the "CASH EQUIVALENT COLLATERAL" condition, please check out the following link - https://tradingqna.com/t/the-different-types-of-bonds-that-you-can-invest-in/58254/11?u=4autotrading


Please notice these notes given at the very bottom of the Excel sheet from the above link.


Notes
1) Haircut as applicable subject to a minimum of VaR+ELM+Adhoc
2) The clearing corporation has set a certain limit on the number of shares/units that can be pledged per security through a broker. If the broker limit is reached, you will not be able to further pledge such securities for margin.
3) For stocks pledged before 4pm, collateral margin will be available on T+1 day.
4) The collateral margin received by pledging cash component securities can be used fully towards any margin requirement for your open positions. You will not be required to maintain cash separately if the collateral from cash component securities covers the margin requirement.
5) The collateral margin received by pledging non-cash component securities can be used only up to 50% of the margin requirement for your open positions. The exchange stipulates for the remaining 50% margin to come in the form of cash or cash equivalent collateral. Any additional utilisation of the non-cash collateral, over and above 50% of the margin requirement will be liable to delayed payment charges.
6) Cost of pledge: Rs.30 + GST per scrip irrespective of quantity of stock pledged.
7) For all unpledge requests placed before 2 pm, stock will be available in demat account for trading on T+1 day.


https://i.postimg.cc/7YtW0wkT/To-pledge-for-Margin-GIF.gif

How r u buddy

I never pledged cash equivalents so just want to know -
Brokers don't charge interest on marin used against pledged cash equivalents?

Note - these cash equivalents may be accepted by brokers as cash component for collateral and proving margin but my point is since they use as a collateral - broker is funding on your behalf so interest should be charged... right?

 

[TracerBullet]

How r u buddy

I never pledged cash equivalents so just want to know -
Brokers don't charge interest on marin used against pledged cash equivalents?

Note - these cash equivalents may be accepted by brokers as cash component for collateral and proving margin but my point is since they use as a collateral - broker is funding on your behalf so interest should be charged... right?

There is no interest, and i think it gets pledged to clearing corp so i don't think they need to keep additional money with them. We only need to have pnl / drawdown money in account. This also helps during quarterly settlement as these holdings are unaffected.

 

[travi]

I am requesting a few of the experienced and helpful members here, to please share their guidance on this, whenever they get some time - @Smart_trade , @Pradeep Narayan , @newtrader101 , @CougarTrader , @travi , @primitivetrader , @suri112000 , @curiousv


If you need any more information from my side, before making the suggestions, then kindly let me know, I will provide all the details accordingly.


Thanks a lot.

i read your thread, but due to my own continuous deployment starting many years ago, i cannot keep moving funds around in Debt instruments. It will defeat the purpose of LTCG(3 yrs min holding for indexation) plus i need to book gains and that is a burden for that FY as tax slab is higher.

I have concentrated my liquid collaterals in various liquid/money mkt funds. Last 3-5 yrs we were in downcycle but currently one can concentrate more in GILT and lock-in better rates.
Holding TF should be longer to benefit so one can spread it.

Gilt have underlying with govt bonds and are the safest. MMF have up to 1yr maturity and are reasonably safe. overnight to me is extra-cautionary

Regarding Margin:
Overnight positions require min 50% from liquid collaterals and i have pledged portf too so 50:50 rule gives adequate margin.
Intra has no such requirement, even non-cash component is enough. Margin is applicable for margin-positions only, not buying in CNC or long-options etc

Penalty arises only on cash amount that is not sufficient for overnight. Intraday margin shortfall penalty is not passed on as per current rules. That is why margin requirements have gone up a bit.

Entirely options selling is ideally the best utilization of pledged collateral. That is why synthetic futures is sometimes preferred over Futures contracts, no daily MTM and hence very less FREE cash required.
Even BUY side legs get credit(funding) from premium rec'd.

Since i'm mostly in index, FAR month Nifty contracts are also quite liquid.

I have completely avoided any pledge instrument that gives a periodic interest payout like some G-Secs, LiquidBees etc bcos that gets added to your current FY income. Anything that is MF-Growth option is what I choose.

We need to remember that Dividends from portfolio( some FDs etc) also contribute to annual income but this cant be purely avoided.
Ofc, ppl can buy portf though ETF/MF with growth option too instead of individual stocks.

 

[mohan.sic]

There is no interest, and i think it gets pledged to clearing corp so i don't think they need to keep additional money with them. We only need to have pnl / drawdown money in account. This also helps during quarterly settlement as these holdings are unaffected.

thats nice...
1.so if we hold these debt etf/mutual funds from the list and pledge them then after that 10% haircut the collateral is equal to cash...right ?
2. If point no.1 is correct then there is no issue of even this minimum 50% cash requirement because all we have as collateral is cash/cash equivalent ?

 

[TracerBullet]

thats nice...
1.so if we hold these debt etf/mutual funds from the list and pledge them then after that 10% haircut the collateral is equal to cash...right ?
2. If point no.1 is correct then there is no issue of even this minimum 50% cash requirement because all we have as collateral is cash/cash equivalent ?

yes. I trade intraday without issue and also overnight 50% rules is only for non-cash things. We get 90% margin and with time value will increase so within 2 years you should get full margin ( vs invested capital ).
Keep it invested for 3+ years and you will get indexation on this.