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

mohan.sic

Well-Known Member
#21
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.
lets see for carry forward only and ignore intraday -

1. so if we pledge 20 lakhs eligible cash equivalent mutual fund thats equal to 18 lakhs cash component which can be used for f&o trading (writing) ?

2. since the 18 lakh is equal to cash there is no need to check for 50:50 rule and what ever f&o positions we take using this 18 lakhs as margin is completely interest free ?
 
#22
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 both your points are correct, as our collateral is Cash Equivalent based on the List of Funds given in the Excel Sheet that I have attached.

Please keep in mind that we cannot just randomly buy any xyz Mutual Funds and assume them to be treated as Cash Equivalent, instead we need to confirm this from our particular broker.

Here is the list for zerodha -
https://support.zerodha.com/categor...edging/articles/list-of-stocks-pledge-zerodha

Here is the list for fyers -
https://fyers.in/haircut/cash/

I could not find the list for the Angel Broker, if someone is aware of the link, please share that as well.


lets see for carry forward only and ignore intraday -

1. so if we pledge 20 lakhs eligible cash equivalent mutual fund thats equal to 18 lakhs cash component which can be used for f&o trading (writing) ?

2. since the 18 lakh is equal to cash there is no need to check for 50:50 rule and what ever f&o positions we take using this 18 lakhs as margin is completely interest free ?
Yes both your points are correct. And there is no extra interest cost etc. as well. You will just need to pay the small one time free for pledging and un-pledging, which is not much.

I think this is a good way to earn extra on our margin that we keep for trading and most traders should make use of this. And just as @TracerBullet bhai has already mentioned, this also saves us from the hassle of those quarterly settlements as well. It is just a one time effort initially to find good funds and invest into them and after that its a smooth effortless process giving us the extra benefit over our normal trading earnings.

If you have any more doubts, please feel free to ask.

Thanks to all the friends for participating in this thread and bringing so much of clarity.

Best Regards
 
#23
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 :D

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.
Thank you so much for your detailed reply ravi bhai, much appreciated.

Are you aware of some link where I can get some sense of what kind of % annual returns should I expect from the different categories of the Debt Funds, just as you have mentioned the Gilt, Money Market and the Overnight Funds in your post. I am aware of the different holding time periods for these categories, but how can I get a rough estimate of the type of returns that I would get if I hold them for atleast 1 year time period? I think their returns would be more or less, stable overall, as all these are invested into the Debts and they will not fluctuate like the equity markets do. Could anyone please guide in this regards ?

Thanks a lot
 

mohan.sic

Well-Known Member
#24
Yes both your points are correct, as our collateral is Cash Equivalent based on the List of Funds given in the Excel Sheet that I have attached.

Please keep in mind that we cannot just randomly buy any xyz Mutual Funds and assume them to be treated as Cash Equivalent, instead we need to confirm this from our particular broker.

Here is the list for zerodha -
https://support.zerodha.com/categor...edging/articles/list-of-stocks-pledge-zerodha

Here is the list for fyers -
https://fyers.in/haircut/cash/

I could not find the list for the Angel Broker, if someone is aware of the link, please share that as well.




Yes both your points are correct. And there is no extra interest cost etc. as well. You will just need to pay the small one time free for pledging and un-pledging, which is not much.

I think this is a good way to earn extra on our margin that we keep for trading and most traders should make use of this. And just as @TracerBullet bhai has already mentioned, this also saves us from the hassle of those quarterly settlements as well. It is just a one time effort initially to find good funds and invest into them and after that its a smooth effortless process giving us the extra benefit over our normal trading earnings.

If you have any more doubts, please feel free to ask.

Thanks to all the friends for participating in this thread and bringing so much of clarity.

Best Regards

That looks very nice for now as an idea.

I am not aware that this list of cash equivalents can be pledged and used as margin with zero cost.
I am aware that there are cash equivalents like liquid bees etc but under impression that brokers only accept them in place of cash but thought that they would charge interest on the margin we take against them ( just like the way they charge on equities pledged and margin used on them)

I do pledge and release equities on continuous basis but never pledged these liquid instruments as dint have any in my holding. Will try this time.

Do we have any list of liquid instruments with no price fluctuation but only fixed/floating returns ?
 

travi

Well-Known Member
#25
Thank you so much for your detailed reply ravi bhai, much appreciated.

Are you aware of some link where I can get some sense of what kind of % annual returns should I expect from the different categories of the Debt Funds, just as you have mentioned the Gilt, Money Market and the Overnight Funds in your post. I am aware of the different holding time periods for these categories, but how can I get a rough estimate of the type of returns that I would get if I hold them for atleast 1 year time period? I think their returns would be more or less, stable overall, as all these are invested into the Debts and they will not fluctuate like the equity markets do. Could anyone please guide in this regards ?

Thanks a lot
use moneycontrol, groww compare mf, valuesearchonline etc
 

mohan.sic

Well-Known Member
#26
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 :D

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.
where can we get the list of acceptable liquid collaterals those which gives periodic returns with near to zero price fluctuation ....
 
#27
Hello Frinds.

Since I have been doing a lot of searching regarding the various Debt Funds and their advantages, therefor this point keeps on coming up again and again that if the Debt Funds are chosen wisely, then they could give much better returns then the Bank Fixed Deposits.

Contrary to the popular opinion, Bank FD's are guaranteed to the maximum amount of Rs 5 lac only by the RBI, even if you have the FD of Rs 5 crore in that bank.

Bank FD returns are charged according to your income tax slab, so for the higher tax brackets, their returns gets depleted.

Debt funds offer the Indexation Benefits, if they are held for more then 3 years duration, this benefit is not available for the Bank FD's.

You may check more details from the following links -


https://www.indmoney.com/mutual-funds/debt-funds

Taxability

Debt investing is tax-efficient and attracts less tax than other investment instruments. Here are the tax aspects to be aware of:

With the best debt funds, you are liable to pay short-term capital gains if your investment period is less than 3 years. These are to be paid at your income slab rate.

If the investment period is more than 3 years, you will need to pay long-term capital gains tax. LTCGs are taxed at 20% with indexation benefits. However, the tax needs to be paid only at the time of redemption.

There is a tax advantage with debt investing. Let's understand this with the help of an example – Assume that you are debt investing and the fund gave you an 8% return, and the inflation rate is 5% during that period. You will only need to pay tax on the 3% of the debt mutual fund returns. There is no such provision in the case of fixed deposits.





https://www.etmoney.com/mutual-funds/debt

How capital gains are taxed depends on the length of time for which an investor holds the units of a mutual fund. If an investor stays invested in a debt fund for a period up to 3 years, capital gains on redemption/sale are considered as short-term capital gains and taxed at the income tax slab rate applicable to the investor.

However, if the debt fund is redeemed/sold after being held for more than 3 years, it is considered as long-term capital gain and the investor gets the benefit of "indexation". This means that the purchase price is increased to adjust for inflation (using an index provided by the Government) before calculating the capital gain. Long-term capital gains are currently taxed at a rate of 20%.

Here is a simple example to explain this concept. Suppose Amit invested Rs100 in a debt fund in FY 2014-15 and sold it for Rs160 in FY 2018-19. Since Amit was invested in the fund for more than 3 years, he has earned long-term capital gains on the sale of his units. The Cost Inflation Index (CII) in FY15 and FY19 were 240 and 280 respectively. For tax purposes, Amit's purchase price will be increased to (280/240) x 100, or Rs117, and taxable long-term capital gain will be 160 - 117 = Rs43. The tax payable is 20% of Rs43, or Rs8.60.
 
#28
where can we get the list of acceptable liquid collaterals those which gives periodic returns with near to zero price fluctuation ....
This is exactly what I have been trying to do for the last many days. :)

First you will have to decide which particular broker you want to use for this work.
Then go through the list of the accepted collateral which will qualify as the Cash Equivalents from that broker.
Then within that shortlisted list of Funds, you need to decide what is your time horizon for this investment. Ideally it should be more then 3 years, so that you can get the Indexation and the Tax Benefit, just as I have explained in my post given above.

Once these basic steps are done, then you will need to do this research to zoom in and finalize the exact names of the Debt Funds, which are worthy of your investment -

https://www.indmoney.com/mutual-funds/debt-funds

How to evaluate debt funds?

Track record: If the fund has consistently outperformed its peers and the benchmark over a 3 year and 5-year horizon, it is an indication that the fund is well-managed. While past performance is no guarantee of the future returns, it is an important indicator about the track record of the fund, and helps in evaluation with respect to its peers.

Management: Management of the equity funds plays an important role in its performance. Hence, if you have confidence in the asset management company and they are doing an ideal job in necessitating growth, you can bank on this fund. Also, the reputation of the fund manager is an important factor to check.

Expense ratio attached to the funds: This is usually seen as a parameter against all kinds of funds. It is defined as the money undertaken by fund managers for maintenance, marketing, distribution and selling expenses, etc. The right fund will have a desirable expense ratio within the range of 0.5 to 2.5%, which is an ideal industry benchmark.

Asset allocation: One of the key things to look at is how diversified is your fund’s portfolio and where have they majorly invested in. Some funds may invest in more risky debt instruments to generate higher returns while others may invest in safer secturties like Government Bonds. Your risk and returns potential depends on the type of asset allocation you prefer.

Asset Under Management: Higher fund size is complicated to manage, and a smaller fund size lacks flexibility. The Asset under management should not be very high or very low. This allows the funds' manager to liquidate investment and navigate swiftly during turbulent times easily.
How to choose the best debt funds to invest?

1. Returns- Funds should give consistent returns. Investors should look for the past 1 year, 2 year and 3 year returns.
2. Risk- Investors should look for the holdings of the fund and they should be highly rated.
3. Expense Ratios- Investors should look for funds with lower expense ratio.


Please feel free to ask anything else in this regards. We both are in the same boat now and it is nice to have a company. Hopefully we will be able to finalize a few good Debt Funds which will give 6% plus returns over the next 3 years. This will be extra benefit for both of us.

Thanks to all the friends who have helped.

Best Regards
 

travi

Well-Known Member
#29
Hello Frinds.

Since I have been doing a lot of searching regarding the various Debt Funds and their advantages, therefor this point keeps on coming up again and again that if the Debt Funds are chosen wisely, then they could give much better returns then the Bank Fixed Deposits.

Contrary to the popular opinion, Bank FD's are guaranteed to the maximum amount of Rs 5 lac only by the RBI, even if you have the FD of Rs 5 crore in that bank.

Bank FD returns are charged according to your income tax slab, so for the higher tax brackets, their returns gets depleted.

Debt funds offer the Indexation Benefits, if they are held for more then 3 years duration, this benefit is not available for the Bank FD's.

You may check more details from the following links -


The point is that you are realising all of this today :DD
It is as old as the instruments and IT rules themselves.

Just a note i missed in previous post.
Also margin collateral and margin funding are two very different things.

In collateral margin, there is no interest bcos broker is not providing additional funds whereas margin funding has interest applicable.

Margin funding primarily targets funding CNC trades, or some form of cash component fund or MTM shortfall etc.
 
Last edited:

travi

Well-Known Member
#30
This is exactly what I have been trying to do for the last many days. :)

First you will have to decide which particular broker you want to use for this work.
Then go through the list of the accepted collateral which will qualify as the Cash Equivalents from that broker.
Then within that shortlisted list of Funds, you need to decide what is your time horizon for this investment. Ideally it should be more then 3 years, so that you can get the Indexation and the Tax Benefit, just as I have explained in my post given above.

Once these basic steps are done, then you will need to do this research to zoom in and finalize the exact names of the Debt Funds, which are worthy of your investment -



How to choose the best debt funds to invest?

1. Returns- Funds should give consistent returns. Investors should look for the past 1 year, 2 year and 3 year returns.
2. Risk- Investors should look for the holdings of the fund and they should be highly rated.
3. Expense Ratios- Investors should look for funds with lower expense ratio.


Please feel free to ask anything else in this regards. We both are in the same boat now and it is nice to have a company. Hopefully we will be able to finalize a few good Debt Funds which will give 6% plus returns over the next 3 years. This will be extra benefit for both of us.

Thanks to all the friends who have helped.

Best Regards
One thing you should remember is that we don't need a stock selection approach here.
Everyone's return is very similar and all are around interest rates prevailing at the time.

I only focus on the reliability of the AMC. As an example, i never had Franklin Templeton MF.

I prefer HDFC, SBI, Kotak, Nippon, ICICI.
UTI only in the last 3 years bcos it's driven by the larger psu names.

Even in banks, SBI has lowest FD rate but that ís bcos of its near sovereign capacity. Most of the savings are with them only and i won't break my head over 0.1 or 0.2% difference.
I won't open 10 bank accounts to diversify my FD. One SBI is enough and near 18 yr hdfc bank customer where the rest of the banking needs are taken care.
 

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