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-November-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.

Need quick liquidity without selling your investments? Get the value of your shares instantly. Apply for a Loan Against Shares today

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.

Pros and cons of margin trade funding and loan against shares

Both Margin Trade Funding (MTF) and Loan Against Shares (LAS) help investors use their equity holdings to raise funds or increase market exposure. However, they serve different purposes: MTF is primarily for leveraged trading, whereas LAS is for liquidity without selling holdings. Understanding their benefits and risks helps investors choose the right option based on their financial needs and market outlook.

Pros

  • MTF increases market exposure without requiring full upfront capital.
  • LAS offers liquidity without selling long-term investment holdings.
  • MTF interest applies only on the funded portion of the trade, not on the margin paid by the investor.
  • LAS interest is charged only on the withdrawn amount, especially in overdraft-based loans.
  • Both options preserve ownership of shares, allowing investors to continue earning dividends and rights.

Cons

  • MTF involves higher risk, as falling share prices may trigger frequent margin calls.
  • LAS requires maintaining the minimum LTV ratio, and market fluctuation can cause margin shortfalls.
  • MTF is short-term in nature, suitable only for active traders.
  • LAS might not be available on all shares, as lenders accept only approved securities.
  • Failure to meet margin calls in either option can lead to forced liquidation of pledged securities.

Eligibility and application process for MTF and LAS

Both MTF and LAS are regulated services where brokers or lenders assess client eligibility before approving the facility. Eligibility factors include the type of shares held, investor profile, and compliance requirements. Once eligible, investors can activate these facilities digitally via trading or loan platforms.

Eligibility

  • Investor must hold shares from an approved list of securities.
  • PAN and KYC compliance is mandatory.
  • Income proof may be required for LAS, depending on the loan structure.
  • MTF may require a trading account and margin account with the broker.
  • The applicant must be an Indian resident or NRI (subject to lender rules).

Application process

  • Select the facility through a broker or lender’s platform.
  • Submit required KYC documents and sign the agreement digitally.
  • For MTF: margin account is activated, and shares bought become collateral.
  • For LAS: existing shares are pledged digitally through a lien/pledge request.
  • Once approved, the limit becomes active, and funds/trading margin is available.

How margin trade funding works?

Margin Trade Funding (MTF) allows investors to buy more shares than their available capital by funding a portion of the trade through a lender or broker. In this model, the investor pays a margin amount, while the remaining purchase cost is financed, enabling higher market exposure.

  • Investor contributes a minimum margin amount (cash or shares as collateral).
  • Broker or lender funds the remaining portion of the trade value.
  • Shares purchased are held as collateral until the loan is repaid.
  • Interest is charged only on the financed amount, not the investor’s margin contribution.
  • If share prices fall below a set limit, a margin call is triggered and the investor must add funds or securities.
  • Failure to meet margin calls can result in the broker selling pledged shares.

How loan against shares works?

A loan against shares allows investors to unlock liquidity from their shareholdings without selling them. Instead of liquidating their investments, they can pledge the shares to a financial institution and receive a loan against their market value.

  • Shares are pledged as collateral through a digital pledge/lien process.
  • Loan amount depends on the value of shares and the lender’s Loan-to-Value (LTV) ratio.
  • Borrowers continue to retain ownership; dividends and rights may still accrue.
  • Interest is charged only on the utilised amount in most overdraft-based loans.
  • If market value drops below the required limit, a margin shortfall alert is issued.
  • Loan can be repaid anytime, after which the lien is removed and shares are released.

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

Frequently asked questions

What is the main difference between MTF and loan against shares?

MTF funds the purchase of new shares for trading on leverage, while a loan against shares provides liquidity against existing shareholdings without selling them. MTF suits active traders, whereas LAS supports funding needs without exiting investments.

How risky is margin trade funding compared to loans against shares?

Margin Trade Funding carries higher risk because leverage magnifies losses and triggers frequent margin calls during market drops. LAS is comparatively safer, as shares are only pledged, and loan usage depends on the borrower, not market trading.

Can I use loan against shares for personal expenses?

Yes, loan against shares can be used for various personal or business purposes such as education, medical needs, business expansion, or working capital. However, it shouldn’t be used for speculative trading or market-linked investments as per regulations.

Will I lose my shares if the stock price falls?

In both MTF and LAS, a significant price drop may trigger margin or shortfall alerts. If the investor fails to add funds or securities, the broker or lender may liquidate pledged shares to recover dues.

Which option is better for long-term investors?

Loan against shares is better for long-term investors as it offers liquidity without selling portfolio holdings. MTF is mainly suited for short-term traders looking to increase buying capacity, not for passive or long-term investment strategies.

Do I keep receiving dividends on pledged shares?

Yes, investors usually continue to receive dividends, bonuses, and rights issues on pledged shares, as ownership remains with them. However, brokers may adjust dividends in MTF if dues are pending or terms specify otherwise.

How are interest rates calculated in MTF and LAS?

In MTF, interest is charged on the funded portion of the trade from the broker. In LAS, interest is charged only on the amount withdrawn from the approved limit, especially in overdraft-based loan structures.

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