Trading in securities is an exercise that requires a high degree of attention to detail and knowledge of the applicable rules and regulations. For instance, did you know that you can buy securities and trade in them even if you do not have sufficient funds at your disposal? This is where the collateral amount in your demat account comes into the picture.
Published on 28 January 2022
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What is the Collateral Amount in a Demat Account?
The word collateral means an asset you pledge to borrow something or use a service. In the same light, a collateral amount in a demat account is a service you can avail of from your stockbroker to buy shares, debentures, and derivatives in the market. In exchange for this service, the stockbroker holds the assets in your demat account as collateral security and also charges a fee in the form of interest. Also Read: What Is Dematerialisation of Securities?
How Does the Collateral Amount in a Demat Account Work?
The collateral amount offered to you by your stockbroker is also commonly referred to as a collateral margin. This is because once you pledge the shares and/or debentures held in your demat account, the stockbroker increases your trading margin without any infusion of funds on your behalf. You can, therefore, think of the collateral amount in your demat account as a type of loan issued against the securities you own. Also Read: Steps of purchasing & selling of Shares
You can purchase securities from your enhanced trading limit. As consideration for the above service, your stockbroker charges a fee termed as interest on collateral. Until the time that you have repaid the collateral amount in your demat account, as well as the applicable interest to your stockbroker, you cannot access or sell the pledged securities.
How is the Collateral Amount in a Demat Account Computed?
The collateral amount in your demat account is computed based on the market value of the securities you are pledging as collateral assets. However, there is a risk of a decline in the market value of the collateral securities, which is why your stockbroker shall not issue the entire value as collateral amount to you. The actual collateral margin issued to you to enhance your trading limit is, thus, lower than the total value of the pledged securities. Also Read: What is Pleadging of Shares?
What are the Benefits of the Collateral Amount in a Demat Account?
There are several benefits of availing of the facility of collateral margin, some of which have been discussed below:
1. It enhances your ability to purchase and trade in securities: Collateral margin is highly useful, particularly if you are facing a liquidity crunch. This facility enables you to purchase and trade securities in the market without adding additional funds to your trading account. Instead, your stockbroker simply enhances your trading limit based on the value of the securities pledged by you.
2. It increases your leverage: Since the facility of the collateral amount in your demat account account enables you to purchase and trade securities on borrowed money, your leverage gets increased, and so does your ability to earn a higher return without any additional investment.
3. It enables you to utilise the securities you own to buy and trade in more securities: Quite often, the securities that you have purchased for the long term stay in your demat account without generating any return in the interim. With the help of the facility of collateral margin, though, you can put those securities to use and engage in more trades.
To Sum It Up
Although the collateral amount in your demat account allows you to have an increased trading limit, it simultaneously strips you of the right to sell the securities that are held as collateral by your stockbroker. You must, therefore, be mindful while availing of the facility of the collateral amount and pay the interest thereof in time.
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The stock market has witnessed a fascinating evolution. From close to a hundred years of traders ardently shouting on the trading floors to buy and sell shares, the capital market has become more accessible to investors with the introduction of a demat account in India.
Whether it is to hold, buy, or sell shares in the capital market, an investor needs to open a Demat account and a trading account with their chosen depository participant (DP). A Demat account allows investors to hold their shares and securities. For trading in India, however, an investor needs to open a trading account first. Before they begin trading in India, every investor needs to acquaint themselves with the different types of trading accounts and the types of Demat accounts that are catered to address the varied demands of the investors.
In India, a Demat account can be opened with a depository participant (DP). The National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL) are the two depositories in India that offer depository services to market participants. These depositories have multiple depository participants that offer Demat accounts to people.
The stock market has witnessed a fascinating evolution. From close to a hundred years of traders ardently shouting on the trading floors to buy and sell shares, the capital market has become more accessible to investors with the introduction of a demat account in India.
Whether it is to hold, buy, or sell shares in the capital market, an investor needs to open a Demat account and a trading account with their chosen depository participant (DP). A Demat account allows investors to hold their shares and securities. For trading in India, however, an investor needs to open a trading account first. Before they begin trading in India, every investor needs to acquaint themselves with the different types of trading accounts and the types of Demat accounts that are catered to address the varied demands of the investors.
In India, a Demat account can be opened with a depository participant (DP). The National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL) are the two depositories in India that offer depository services to market participants. These depositories have multiple depository participants that offer Demat accounts to people.
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Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.
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System Data:
Sharekhan Comtrade Private Limited uses your IP address to help diagnose problems with our server and to administer the web site. Your IP address is used to identify you and your shopping cart and to gather broad demographic information.
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The Web Site uses an order form for customers to request information, products and services. The Web Site collects visitors' contact information (like their mobile number or e-mail address), unique identifiers (like their PAN number) financial information (like their account or credit card numbers) and demographic information (like their pin code, age or income level). Contact information from the order form is used to send orders, information about Sharekhan Comtrade Private Limited, and promotional material from some of Sharekhan Comtrade Private Limited's partners to the visitors of the Web Site. The visitor's contact information is also used to get in touch with the visitor when necessary. Financial information that is collected is used to check the users' qualifications and bill the user for products and services. Unique identifiers (such as PAN numbers) are collected from Web Site visitors to verify the user's identity.
Surveys and Contests:
The Web Site's online surveys ask visitors for contact information (like their mobile number or e-mail address) and demographic information (like their pin code, gender, age or income level). The Web Site uses contact data from its surveys to send the user information about Sharekhan Comtrade Private Limited and promotional material from some of Sharekhan Ltd.'s partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below. Demographic and profile data is also collected at the Web Site. The Web Site use this data to tailor its visitor's experience at the Web Site, showing them content that it thinks they might be interested in, and displaying the content according to their preferences. This information is shared with advertisers on an aggregate basis.
Sharekhan Comtrade Private Ltd run contests on the Web Site in which we ask visitors for contact information (like their e-mail address). Sharekhan Comtrade Private Limited uses contact data from its contests to send users information about Sharekhan Comtrade Private Ltd. and promotional material from some of our partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below.
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Sharekhan Comtrade Private Limited engages the services of an outside advertisement company to display advertisement on the Web Site. These advertisements may contain cookies. While Sharekhan Comtrade Private Limited uses cookies in other parts of the Web Site, cookies received with banner advertisements are collected by the Advertisement company, and Sharekhan Comtrade Private Limited does not have access to this information.
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The privacy and protection of your data and information provided to us is of vital importance. Sharekhan Comtrade Private Limited shall ensure to safeguard the security and confidentiality of any information you share with us. Any personally identifiable information of the customers obtained by us shall not be used or shared other than for the purposes to which the customers consents. However security and confidentiality of information cannot be guaranteed cent percent. Hence despite our utmost efforts to protect your personal information, Sharekhan Comtrade Private Limited and www.myespresso.com cannot warrant the security of any information you transmit to us through our online services. Such transmission of your personal information is done at your own risk.
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The Web Sites makes chat rooms, forums, message boards and/or news groups available to its users. Please remember that any information that is disclosed in these areas becomes public information and you should exercise caution when deciding to disclose your personal information.
Supplemental Information :
The Web Site supplements the information that you provide with information that is received from third parties.
The Web Site DOES NOT entice by the prospect of a special game, prize or other activity, to divulge more information than is needed to participate in the activity.
Further to the above, in light of the recently notified Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011. (Hereinafter referred to as the Rules)
The following shall be deemed to be sensitive information :
Password;
Financial information such as Bank account or credit card or debit card or other payment instrument details;
Physical, physiological and mental health condition;
Sexual orientation;
Medical records and history;
Biometric information;
Any detail relating to the above clauses as provided to body corporate for providing service; and
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Collection of Information:
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In order to provide enhanced trading experience to the client.
In order to provide any further information to be provided to regulators.
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Clients would be allowed an option not to disclose any information to be collected, provided the same is in compliance with regulatory requirements.
Disclosure of information:
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Provided no consent may be required in case the same is being shared as per compliance guidelines or as required by regulators.
Any information being disclosed to third parties would be in accordance with the Rules and would be done provided such third party has the same level of compliance guidelines as Sharekhan Comtrade Private Limited.
Sharekhan Comtrade Private Limited shall allow clients to review their personal information and the same shall be allowed to be edited provided exchange guidelines relevant to the same are followed.
Sharekhan Comtrade Private Limited shall maintain reasonable security practices and procedures and maintain a comprehensive documented information security programme. In the event of an information security breach, Sharekhan Comtrade Private Limited or a person on its behalf shall be required to demonstrate as and when called upon to do so by the agency mandated under the law, that there have implemented security control measures as per their documented information security programme and information security policies and information security policies that contain managerial, technical, operational and physical security control measures that are commensurate with the information assets being protected with the nature of business.
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Download Client Registration Documents (Rights & Obligations, Risk Disclosure Document, Do's & Don't's) in Vernacular Language :
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