Hi @market_edge, Sure! Let me walk you through a clear example to help you understand how buying stocks using pledge margin works, what charges apply, and how long you can hold the stocks.
Account Summary:
Opening Ledger: ₹0
Pledge Margin Available: ₹1,00,000
Available for Investing: ₹1,00,000 (from pledged stocks)
Let’s say you buy 20 quantities of ABC Company on Monday at ₹500 using only pledge margin. That makes your total buy value ₹10,000. Since you used only pledge margin and had no cash, your ledger becomes –₹10,000 after the trade. You can hold the stocks for T+4 trading days. On the T+5th day, the system will auto-square off your stocks to clear the negative ledger if no cash is added.
Let’s now look at the applicable charges:
DPC Interest (Delay Payment Charges): Since your ledger goes negative from the day of purchase, you’ll be charged 0.0438% per day on the negative balance of ₹10,000, which equals ₹4.38/day. So for 7 days, the total DPC interest would be ₹30.66.
Margin Interest: As per regulations, a 50:50 ratio of cash/cash components and collateral is required as an upfront margin. For your ₹10,000 buy, the minimum VaR+ELM margin (say 20%) is ₹2,000 (₹1,000 in cash and ₹1,000 in collateral). Since you only had pledged margin and no cash, the shortfall of ₹1,000 in cash attracts margin interest of ₹0.438 (0.0438% of ₹1,000), charged only on the day of trade.
Note: Pledge margin is provided by the broker, which is why it is not added to the ledger balance. Additionally, normal government charges such as STT, GST, Exchange Transaction Charges, SEBI fees, and Stamp Duty will also be applicable as per standard rates.