What Is MTF and How Does It Work?

You spot a stock you want to buy.

The opportunity looks right. The timing feels right but your available capital isn’t enough to buy the quantity you want.

This is the problem Margin Trade Funding solves.

Your broker funds the portion you are short on. You pay interest on what they put in. The shares land in your demat account, fully owned by you, the moment the trade goes through.

Here is everything you need to know

What Is MTF?

Margin Trade Funding is a loan facility extended by your broker to help you purchase shares in the cash delivery segment.

Unlike intraday trading, where positions must be squared off the same day, MTF lets you hold positions for days, weeks or even months. You buy the shares; they are credited to your demat account & you repay the funded amount along with accrued interest when you choose to sell.

The key distinction from derivatives with MTF is that you actually own the shares. Dividends, bonuses, rights issues- you are entitled to all corporate benefits. With futures or options, you hold a contract, not the underlying asset.

How Does MTF Work?

Here is a simple example.

A stock is trading at ₹1,000 per share. You want to buy 100 shares, for a total value of ₹1,00,000. Under MTF, you bring in 25% as margin, ₹25,000. Your broker funds the remaining ₹75,000.

You purchase the shares in full on the exchange at the prevailing market price. The broker extends the funded portion as a loan. Interest accrues daily on the funded amount from the purchase date.

When you sell, the proceeds first repay the loan & accrued interest. The remainder is yours.

SEBI Rules for MTF — What You Need to Know

First — You bring in at least 25%. Your broker covers the rest.

Second — SEBI approves a specific list — mostly large-cap, liquid names. That list gets updated so verify before entering a position.

Third — Your broker needs to be SEBI-registered with a minimum net worth of ₹3 crore & exchange approval to offer this facility. Not every broker qualifies.

Fourth — The shares you buy are pledged to the broker until you repay. You own them — but the broker holds a lien until the balance is cleared.

The scale of this market tells its own story. By mid-2026, outstanding MTF positions had reached ₹1.3 trillion — nearly 50% higher than the year before.

What Does MTF Cost?

MTF costs the daily interest charged on the funded amount.

Interest rates vary by broker, typically ranging from 9%-18% per annum, charged daily on the outstanding funded amount.

Using the earlier example, ₹75,000 funded at 12% per annum works out to approximately ₹24.66 in daily interest. Over 30 days, approximately ₹740 in interest cost.

Factor this cost into any MTF position. If the stock does not move enough to cover the interest cost, the trade loses money even if the price stays flat.

MTF vs Intraday vs Futures

The Risks of MTF — What Every Investor Should Understand

MTF amplifies both gains & losses.

If the stock rises 10%, your return on the 25% capital deployed is approximately 40% because you owned the full position with a fraction of the capital. The leverage works in your favour.

If the stock falls 10%, your loss on the capital deployed is approximately 40%. The leverage works against you with equal force.

Margin call risk - If the value of your MTF position falls below the required margin threshold, the broker issues a margin call. You must either add funds or the broker can sell the pledged shares to recover the required amount

Interest accumulation - The interest clock starts the moment the trade goes through. It does not stop until you repay. Three months at 12% per annum — and the stock needs to climb 3% before profit even enters the picture.

Forced liquidation  - If you cannot meet a margin call — the broker can sell your shares without asking. No warning. No grace period. The position gets closed to recover the outstanding amount and you find out after the fact.

Who Should Use MTF?

MTF is most useful in specific situations:

Short-term conviction plays when you have a strong view on a stock over a defined period & want more exposure than your available capital allows.

Bridging a capital gap when you are expecting funds shortly but want to enter a position now before the opportunity passes.

Yield enhancement when the expected return from a position significantly exceeds the interest cost of the funded amount.

FAQs

What is the minimum margin required for MTF in India?

As per SEBI regulations, the investor must provide a minimum margin of 25% of the purchase value. The broker funds the remaining 75%.

Can I hold MTF positions overnight?

Yes. Unlike intraday trades, MTF positions can be held for days, weeks or months. Interest accrues daily on the funded amount.

What happens if I cannot meet a margin call?

If you fail to bring in additional margin when required, the broker can sell your pledged shares to recover the outstanding funded amount without prior notice.

​Read  our Guide :-  How to open demat account online