MTF: what borrowed money does inside a stock portfolio

What is MTF, in plain words?

MTF is a loan from a stockbroker, secured by the shares the loan buys. You pay an upfront margin, the broker pays the balance, and you pay the broker interest for as long as the loan stays open. The interest rate is set in each broker's terms, so the rate sheet is the first thing to read.

NSE's FAQs for members describe the rules the broker works under. Only a corporate member with a net worth of ₹3 crore or more can offer MTF, after the exchange approves it. The client must give written or electronic consent, and the broker must communicate the rights, obligations and terms. Only Group I equity shares and units of Group I equity ETFs are eligible, and collateral held as securities sits with the broker by way of a pledge.

The pledge matters for a portfolio. A pledged share is still yours on paper, but you cannot sell it freely while it backs a loan.

How much of your own money goes in?

The margin is not a flat number. NSE's FAQ sets it by the kind of stock. For a Group I stock that is in the futures and options segment, the margin is VaR plus three times the exchange's extreme loss margin (ELM). For any other Group I stock or equity ETF, it is VaR plus five times ELM. VaR (value at risk) is the exchange's estimate of a stock's likely one-day loss, and ELM is an extra cushion on top.

NSE's own worked example uses a VaR of 12.5 percent and an ELM of 5 percent. For a futures and options stock that is 12.5 + (3 × 5) = 27.5 percent. For a stock outside that segment it is 12.5 + (5 × 5) = 37.5 percent, so the second group needs more of your own money.

Source: NSE India, FAQs on Margin Trading Facility, https://www.nseindia.com/static/trade/members-faqs-margin-trading-facility, read on 11 October 2026.

What does the arithmetic look like on a ₹10 lakh position?

Take a stock bought for ₹100 a share, 10,000 shares, so ₹10,00,000, under the 27.5 percent margin in NSE's example. This is an illustration with made-up prices, and it ignores interest and charges.

• Your margin is 27.5 percent of ₹10,00,000, which is ₹2,75,000.
• The broker funds the rest: ₹10,00,000 − ₹2,75,000 = ₹7,25,000.
• The price falls 10 percent to ₹90, so the shares are worth ₹9,00,000.
• The funded cost was ₹10,00,000, so the loss on paper is ₹1,00,000.

That ₹1,00,000 is 1,00,000 ÷ 2,75,000 = 36 percent of the money you put in, from a 10 percent fall in the stock. The loan is the reason. The broker is owed the same ₹7,25,000 whatever the share price does, so every rupee of loss lands on your ₹2,75,000.

NSE's FAQ describes the next step. The member must collect mark-to-market margin when the market value of the funded stock is below its cost. In NSE's own example, a fall from ₹100 to ₹90 produces a mark-to-market requirement of ₹10 per share. The maintenance margin is then worked out on the ₹90 value.

Scaled to our position, that is a mark-to-market requirement of ₹1,00,000, plus maintenance margin of 27.5 percent of ₹9,00,000, which is ₹2,47,500. Together they come to ₹3,47,500 against the ₹2,75,000 you started with. The gap is ₹72,500, and a ₹10 lakh position needed that extra cash after one 10 percent move.

What happens if you do not add the money?

That is a margin call. The broker asks for more cash or collateral, and if it does not arrive, the broker can sell the shares to repay itself. The deadline and the rules for selling come from your broker's agreement, so they differ from one broker to the next.

The sale is the part a holder does not choose. The shares go at whatever price the market offers on the day the broker acts, which is usually a day the price has already fallen. The same logic sits behind a crypto liquidation, which the crypto liquidation piece covers on the derivatives side.

Why did the smallcap share of the MTF book draw a warning?

Nithin Kamath, the founder of Zerodha, posted on X on 9 October 2026 that most of the growth in the industry's MTF book is in small and microcap stocks. He wrote that these are the stocks where liquidity tends to dry up first when markets fall or go sideways.

The Economic Times reported his charts, in a story syndicated by inkl and read on 11 October 2026. Small-cap stocks make up around 50 percent of the industry's funded amount, large-cap stocks 32 percent and mid-cap stocks 18 percent.

Liquidity is how easily a holder finds a buyer without moving the price. A leveraged position in a thin stock combines two problems. The loan forces a sale when the price drops, and the thin market means the sale itself pushes the price down further. The holder who wanted to wait is the one the market removes first.

What is the one opinion in all this?

MTF suits a position the holder could carry through a drop. The first test is whether you would still hold the shares at a price a third lower. The second is whether you could pay the broker's call that day without selling something else.

A portfolio decision begins one step earlier, with sizing, and the risk appetite piece puts that limit in rupees. Three percent of a ₹1 crore portfolio is ₹3,00,000. With a loan behind it the position is still three percent of the portfolio, but it can do more damage, because the loan is repaid whatever happens to the shares. A holder who sizes a leveraged position at the borrowed amount, and not at the margin paid, is reading the risk correctly.

What should you check before using MTF?

These checks take a few minutes and sit in the broker's own documents.

1. Read the interest rate and how it is charged. Interest is charged on the borrowed amount while the loan is open, so a longer hold costs more than a shorter one.
2. Find the margin call rule: the threshold, the deadline and when the broker may sell without notice.
3. Look at which stocks the broker funds. NSE limits MTF to Group I securities.
4. Work out the price at which you would get a call, using the arithmetic above, and decide in advance what you would do.
5. Keep the position small enough that a forced sale at a bad price does not change the rest of the portfolio.

Where does this fit with the rest of a portfolio?

Borrowing against shares is one of several ways a holder can raise the size of a position. Selling something else is another, and waiting is a third. Each has a different answer to the same question: who decides when the position is sold? With MTF, the broker's agreement can decide it for you.

The crypto liquidation piece shows the same forced sale in a different market. The mechanism is shared, a loan secured by the asset it bought, and only the venue differs.

Frequently asked questions

What does MTF stand for?

MTF stands for margin trading facility. It is a broker-provided loan that lets you buy shares by paying only part of the price, with the purchased shares held as collateral. The interest rate is set by each broker.

Which shares can be bought under MTF?

Only Group I equity shares and units of Group I equity ETFs are eligible, according to NSE's FAQs for members, which cite a circular of 30 November 2022. The broker may offer a narrower list.

How much margin does MTF require?

It depends on the stock. In NSE's worked example, a Group I futures and options stock needs 27.5 percent (VaR 12.5 percent plus three times an ELM of 5 percent). A Group I stock outside that segment needs 37.5 percent (12.5 plus five times 5).

What is a margin call?

A margin call is the broker's request for more cash or collateral when the shares fall and the margin no longer covers the loan. If the money does not arrive by the broker's deadline, the broker can sell the shares to recover what it lent.

Why is MTF in smallcap stocks riskier?

A smallcap stock has fewer buyers on a falling day, so a forced sale can push its price down further. The Economic Times reported on 9 October 2026 that small-cap stocks account for around 50 percent of the industry's MTF funded amount.

Crypto investments are subject to market risk. Not financial advice.