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Introduction
Today, let’s talk about something many traders overlook: Should you open a separate Demat account for Margin Trading Facility (MTF), or can you manage everything with your existing account?
It’s not a one-size-fits-all answer, but by the end of this article, you’ll know why having a dedicated Demat account for MTF is a smart move.
Why read when you can watch the video?
What Is MTF and Why Is It Important?
Before we dive into the specifics, let’s quickly understand what MTF is.
Margin Trading Facility lets you buy shares by borrowing funds from your broker. You pay part of the trade value upfront, and your broker covers the rest. This means you can take larger positions in the market without needing a lot of capital.
Sounds great, right? But it comes with challenges:
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You need to manage your margins (the amount you owe your broker).
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You’ll pay interest on the borrowed amount.
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If your margin falls short, your broker can sell your shares (a “square-off”).
This is why having a clear strategy—and proper account management—is key.
Why Open a Separate Demat Account for MTF?
Managing MTF trades within your existing Demat account can get messy fast. Let me explain why opening a dedicated account for MTF can make your life so much easier.
1. Simplified Margin Tracking
Margin tracking is everything in MTF. You need to maintain enough funds to secure your positions. If the market drops and your margin falls short, you might have to add more funds quickly.
But when you mix MTF trades with intraday trades or long-term investments in the same account, tracking margins becomes chaotic.
For example:
Imagine you have MTF trades, intraday positions, and stocks you’re holding long-term—all in one account. How will you figure out how much margin you need? One slip-up and your broker could square off your position, costing you money.
A separate Demat account for MTF simplifies this. You can focus entirely on your margin requirements without worrying about unrelated trades.
2. Save on Interest Costs
Here’s the deal: interest rates can make or break your MTF strategy.
Since MTF involves borrowing money from your broker, you’ll have to pay interest on the borrowed amount. If the interest rate is too high, most of your profits will go toward paying the broker.
For example:
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Zerodha charges 14.6% interest.
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Angel One charges 18%.
These rates can eat into your earnings, making MTF less profitable.
Now, if you’re using your existing Demat account with a broker charging high interest rates, you’re at a disadvantage. Instead, open a separate Demat account with a broker offering lower rates—ideally below 10%.
This can make a massive difference. For example, if your broker charges less than 10%, even modest market returns (12% annually) can turn into solid profits (up to 20%!).
3. Transparent Interest Calculations
Interest charges are one of the biggest costs in MTF, so transparency is critical. Unfortunately, not all brokers are upfront about how they calculate interest.
Here’s an example:
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Let’s say you’re using ₹4 lakhs of margin but also keep ₹1 lakh in cash in your account. A fair broker should calculate interest on ₹3 lakhs (₹4 lakhs minus ₹1 lakh).
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However, some brokers still charge interest on the full ₹4 lakhs, ignoring your cash balance!
This lack of clarity can cost you more than expected.
By opening a separate account for MTF, you can choose a broker who provides clear, detailed interest statements. This way, you’ll always know what you’re paying and why.
Benefits of a Separate Demat Account for MTF
Here’s a quick recap of why a dedicated account is worth it:
1. Easier Margin Tracking: Keep your MTF trades separate from other activities, so you’ll always know your margin requirements.
2. Lower Interest Rates: Choose a broker with competitive rates to maximize your profits.
3. Transparency: Get clear, detailed interest calculations to avoid unnecessary charges.
What’s Next? Find the Right Broker
Now that you know the importance of a separate Demat account for MTF, the next step is finding the right broker.
Look for brokers offering interest rates in the 10–11% range or lower. These brokers are ideal for MTF and can help you manage costs effectively.
On the flip side, brokers with higher interest rates might be better suited for short-term strategies like BTST (Buy Today, Sell Tomorrow). While BTST can work, it’s fast-paced and not ideal for consistent profits.
Conclusion
If you’re serious about making MTF a long-term strategy, opening a separate Demat account is the way to go. With a dedicated account, you’ll:
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Track margins easily.
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Save on interest costs.
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Gain better control over your trades.