How is Margin Trade Funding different from Loan Against Shares?

Understand the key differences between margin trade funding and loan against shares as borrowing tools.
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3 mins
25-June-2025

Margin trade funding and loan against shares are both powerful borrowing tools that allow you to access funds by pledging your existing Demat securities. But while they might appear similar on the surface, their use cases, structure, and benefits are very different.

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Let us break down both these options to help you make an informed borrowing decision that matches your financial goals and trading behaviour.

Margin Trade Funding (MTF)

Margin trade funding (MTF) allows you to borrow money from a SEBI-registered stockbroker to buy more shares than your capital permits. It is typically used by intraday traders who want to maximise gains by leveraging their existing capital.

For example, if you have Rs. 50,000, you can use MTF to trade with Rs. 1 lakh or more, depending on the broker’s terms. The broker funds the trade, and your Demat holdings or margin money act as collateral.

Looking to meet personal or business needs instead of just trading? Consider pledging your shares to access funds on your terms. Explore Loan Against Shares now.

Loan Against Shares (LAS)

Loan against shares (LAS) is a secured loan where you pledge your existing Demat holdings to raise funds. These loans are ideal when you need emergency funds, want to avoid selling your long-term investments, or are planning big-ticket expenses like a home purchase or medical treatment.

This loan is flexible, with funds usable for any purpose not just trading. You continue to own your shares and enjoy market appreciation, while accessing liquidity as needed.

Loan Against Shares
Loan Against Mutual Funds

Key differences between margin trade funding and loan against shares

To help you understand the difference between margin trade funding and loan against shares, here is a detailed comparison:

Particulars

Margin trade funding

Loan against shares

Meaning

Loan offered by a broker to buy stocks and trade on margin.

Loan provided by financial institutions against pledged Demat securities.

Purpose

Boost intraday or short-term trading capacity.

Fund personal, business, or emergency needs.

Eligibility

Typically for experienced day traders.

Available to any individual with eligible shares in Demat.

Interest rate

Higher, due to increased trading risk.

Lower, as shares reduce lender’s risk.

Loan-to-Value (LTV)

Up to 90% of the value of purchased stocks.

Up to 50% of the value of pledged shares (regulated).

Tenure

Short-term; daily or monthly rollover.

Ranges from a few days to up to 36 months.

Usage

Exclusively for stock trading.

Usable for medical expenses, home buying, education, business, etc.

 

Who should opt for margin trade finance?

If you are a seasoned intraday trader aiming to maximise market opportunities, margin trade finance might be for you. MTF gives you the ability to buy more shares than you could with your own capital, magnifying both profits and risks.

However, this route is risky and not ideal for non-traders or those looking for stable liquidity.

When is a loan against shares a better choice?

LAS is ideal if you're looking for liquidity without wanting to risk your investments in the market. Whether it's funding higher education, managing cash flow for your business, or handling a medical emergency loan against shares is a reliable, low-risk option.

It lets you retain ownership of your shares while giving you access to much-needed funds quickly.

Risks and charges involved

Both MTF and LAS come with their own costs. Let us take a closer look:

Margin Trade Funding

  • High interest charges (often compounded daily)

  • Risk of margin call if share prices fall

  • May involve additional fees like annual charges or maintenance margin penalties

Loan Against Shares

  • Lower interest rates

  • Fixed processing fees

  • Minimal risk of forced liquidation unless there's a significant price drop

Regulatory framework and lender eligibility

  • MTF is governed by SEBI and available only through registered brokers.

  • LAS is regulated by RBI guidelines, especially for NBFCs, where the LTV ratio must be maintained at 50% at all times. Any shortfall due to market movement must be covered within 7 working days.

Understanding the regulatory differences helps you make safer borrowing decisions based on your needs and compliance boundaries.

Factors to consider before choosing between MTF and LAS

Before choosing a borrowing tool, consider:

  • Your risk appetite

  • Usage of funds (trading vs personal use)

  • Interest rate affordability

  • Duration of funding needed

  • Type and quantity of Demat shares held

Conclusion

Both margin trade finance and loan against shares and securities offer unique benefits. MTF is perfect for experienced traders looking to increase their trading power, while LAS is ideal for individuals needing emergency funds or liquidity without disturbing their long-term investments. Your choice depends on your financial intent whether it is trading more or financing life’s big milestones.

Need funds without selling your shares? Pledge and borrow, while your investments continue to grow. Take a Loan Against Shares today

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