Pledging of shares is becoming increasingly common among retail investors, especially those who want additional margin without selling their long-term holdings. But most investors still don’t fully understand how pledging works, what can be pledged, and what risks and costs are involved.
This article explains the concept in a simple, comprehensive, and practical way.
1. What Is Pledging of Shares?
Pledging works exactly like a loan against gold.
- If you give your gold to a bank, they give you money against it.
- You remain the owner, but the gold stays under the bank’s control until you repay the loan.
Pledging shares works the same way:
👉 You give your shares as collateral to your broker.
👉 In return, the broker gives you margin money.
👉 You can use this margin for trading (F&O, intraday, etc.).
👉 You still remain the owner of the shares.
Your shares are only locked, not sold.
2. What Assets Can Be Pledged?
You can pledge many financial instruments, such as:
✔ Equity Shares
✔ Mutual Funds (Debt, Equity, Liquid Funds)
✔ ETFs (Exchange-Traded Funds)
✔ Government Securities
✔ Bonds
Each asset has a different haircut (explained later).
3. Why Do Investors Pledge Shares?
A. To Get Margin Without Selling Holdings
If you have long-term stock positions but also want margin for trading, pledging is ideal.
Your shares remain invested while you receive additional capital.
B. Better Than Selling Your Portfolio
Selling shares means losing:
- Future returns
- Dividends
- Compounding
Pledging helps you retain all benefits while getting liquidity.
C. Higher Margin Benefit Through Liquid Funds
Many brokers give extra margin if you pledge liquid mutual funds because they are safer.
D. Useful For Short-Term Trading Opportunities
If you see an opportunity but don’t want to sell your investments, pledging gives working capital instantly.
4. SEBI’s New Regulation on Pledging
Earlier, brokers directly moved shares to their pool account, which caused misuse.
SEBI changed the rules to protect investors.
New SEBI Rules (Important):
- Shares never leave your Demat account.
- They are only marked as "pledged".
- You must authorize pledging through CDSL OTP.
- You get full transparency on pledged quantities.
- No broker can misuse holdings.
This makes pledging safer than before.
5. What Is a Haircut?
Haircut = % reduction applied to the collateral value.
Example:
- You pledge shares worth ₹1,00,000
- Haircut is 20%
- Margin you will get = ₹80,000
Haircuts protect the broker against market fluctuations.
Different assets have different haircuts:
- Liquid funds: very low
- Large-cap stocks: moderate
- Small-cap stocks: high
6. Cost of Pledging
Every broker has different fees.
Common charges include:
✔ Pledging Charge – around ₹30–₹50 per request
✔ Unpledging Charge – similar
✔ Interest Rate on Margin Used – 9%–12% approx.
Example:
If you pledge shares worth ₹1,00,000 and get ₹80,000 margin:
- If you use ₹80,000 for trading → interest applies
- If you don’t use the margin → no interest
7. How to Pledge Shares in Zerodha (Step-by-Step Guide)
Follow these easy steps:
Step 1: Log In
Go to Zerodha Console
👉 https://console.zerodha.com
Step 2: Go to Portfolio → Holdings
Here you will see all your shares.
Step 3: Select the Share You Want to Pledge
Click on “Pledge for Margin”.
Step 4: Enter Quantity
Specify how many shares you want to pledge.
Step 5: Confirm the Request
Zerodha will show:
- Haircut
- Approximate margin
- Charges
Click Submit.
Step 6: CDSL Authorization (Very Important)
You will receive:
- An email from CDSL
- An SMS
With OTP → Enter OTP → Approve.
Without this, pledging will NOT be completed.
Step 7: Margin Is Added
Once approved, your pledged margin reflects in your Zerodha account.
8. Advantages of Pledging With Zerodha
✔ Fast and fully online process
✔ Safe due to SEBI + CDSL OTP verification
✔ Margin available for F&O, intraday, and currency
✔ Large list of approved stocks and mutual funds
✔ Haircuts clearly displayed
✔ You continue receiving dividends & bonuses
9. Key Points to Remember
- Pledging is not free → charges apply.
- If share price falls heavily → broker may ask for additional margin.
- Don’t pledge highly volatile stocks unless you understand the risk.
- Only use pledged margin for trading if you know what you're doing.
- Never use pledging for gambling or emotional trades.
10. Conclusion
Pledging of shares is a powerful facility for investors who want additional margin without selling their long-term portfolio. With SEBI’s new rules and CDSL authorization, the process has become transparent and secure.
If used wisely, pledging can help you:
- Maintain investments
- Gain liquidity
- Trade efficiently
- Benefit from multiple opportunities
If used recklessly, it can also lead to losses.
Use it with knowledge and discipline.
%20(2).png)
0 Comments