Key Differences Between MTF and Loan Against Shares

There are times when you need money but don’t want to sell your shares. In such a situation, investors now have two easy and smart options to have access to funds: Margin Trading Facility (MTF) and Loan Against Shares (LAS). Both allow you to pledge your shares with your broker to borrow money, without having to sell your investments. Nowadays, both these facilities are becoming increasingly popular among retail investors in India. 

In this blog, we will understand in detail what is the difference between MTF and LAS, when which option is better, along with their benefits and risks.

What is a Margin Trading Facility (MTF)?

Margin Trading Facility (MTF) is a facility that allows investors to buy shares of a higher value than the total amount they have. In this, you only have to deposit a fixed margin amount, and the rest of the amount is given to you by the brokerage firm as a loan. You can also consider it as the credit card of the stock market.

How does MTF work in India?

MTF service is being provided today by almost all the major brokers of India like Pocketful, Zerodha, Angel One, ICICI Direct, HDFC Securities, Groww etc.When you buy a share through MTF, those shares do not come to your demat account, but remain in pledged status. That is, until your entire loan is repaid, the shares you bought through MTF remain pledged.

How are shares pledged?

The brokerage firm pledges the shares purchased by you through the margin pledge system of NSDL or CDSL. If the stock price falls and the margin is reduced, you get a margin call meaning you either have to put up more money or the brokerage can sell your shares.

Interest Rate & Tenure

Brokerage companies usually charge 12% to 18% annual interest on MTF. The interest charges are calculated on a daily basis. However, some new digital platforms are now offering the facility at even lower rates. For example, Pocketful platform charges only 5.99% annual interest on MTF, which is currently the lowest in the market.

Check Out – Stocks Available for MTF

What is Loan Against Shares (LAS)?

Loan Against Shares (LAS) is a loan that you get by pledging your existing share holdings. You can think of it like a personal loan, where a bank or NBFC lends you a fixed amount based on your share value but without selling your shares.

How does LAS work?

When you take LAS, you have to pledge the shares in your demat account. The bank or finance company then lends a part of your total invested value (usually 50%–70%) as a loan. This entire process takes place under SEBI regulations and the shares remain in your name, only the bank has a lien on them.

Where is it used?

The biggest advantage of LAS is that this loan is for completely unrestricted use, that is, you can use this amount for business, education, medical expenses, or any personal need. It cannot be used for speculative activities and margin trading.

Interest Rate and Loan Tenure

The interest rates on LAS are usually between 9% and 12% per annum, which is lower than MTF. The loan tenure is also more flexible, sometimes it can be from 12 to 36 months.

Key Differences Between MTF and Loan Against Shares (LAS)

Parameter	Margin Trading Facility (MTF)	Loan Against Shares (LAS)
Purpose	To borrow funds for buying more stocks	To get cash by pledging your existing shares
Offered By	Stock brokers	Banks and NBFCs
Tenure	Short-term typically T+7 or T+30 days	Long-term usually 12 to 36 months
Interest Rate	Around 12%-18% annually	Around 9%-12% annually
Pledging	Shares bought via margin are pledged	Pre-owned shares are pledged
Usage of Funds	Only for buying more stocks	For any personal financial need

When Should You Use MTF?

Margin Trading Facility (MTF) is most useful for those investors who are active in the stock market and think of earning more profits in a short time. If you are confident about the short-term movement of a stock, and you are ready to take a little risk, then MTF can be a smart tool.

For which investors is MTF right?

• Focus on short-term trading strategies
• Have a high risk tolerance
• Are skilled at spotting opportunities and can enter and exit trades quickly

Example : Suppose you have ₹50,000 and you want to buy shares worth ₹1,00,000. Through MTF, you can buy stocks up to twice your budget. If you expect a stock to rise by 10% in 5 days, then with this facility you can earn good returns even with less capital.

When is LAS a Better Option?

Loan Against Shares (LAS) is a great option for investors who want to meet some cash needs without selling their long-term share portfolio. In this, you can take a loan by pledging your existing shares and that too without touching your investment.

Who is LAS better for?

• Long term investors who do not want to sell their shares
• Business owners who need funds for working capital
• People who need emergency funds – like medical, children’s fees, or personal expenses
• Low-risk investors

Example : Suppose you have shares worth ₹10 lakh in a demat account. You need ₹3 lakh for college fees. You can take LAS from the bank by pledging these shares without selling them and without affecting long-term returns.

Read Also: Difference between Margin Trading and Leverage Trading

Risk Factors to Watch Out For

Both MTF and LAS facilities are very useful for raising funds from the stock market, but they also carry some important risks, which are important to understand.

Risks associated with MTF:

• If the stock price falls, there may be a forced square-off, i.e. the brokerage can sell your shares
• The interest rate is high (up to 12–18%), which can increase the cost
• Dependence on short-term market movement also leads to a higher timing risk

Risks associated with LAS:

• If the value of the stock falls, the bank can make a margin call
• If the entire portfolio is pledged in a downmarket, the loan-to-value ratio may deteriorate
• If the interest or loan is not repaid on time, the bank can sell your shares.

Read Also: Lowest MTF Interest Rate Brokers in India | Top 10 MTF Trading Apps

Pocketful MTF vs LAS: Which is Better?

Pocketful MTF has an interest rate of just 5.99% per annum, while Loan Against Shares (LAS) from a bank or NBFC usually attracts an interest rate of 9% to 12%. While LAS takes 2 to 5 days to process, Pocketful MTF is activated within minutes and has very limited documentation.The loan amount in LAS can be used for any requirement, while Pocketful MTF is specifically designed for share trading allowing funds to be used directly for trading, allowing for more focused investing.

Conclusion

Both MTF and Loan Against Shares are effective ways to raise funds from the stock market, but their use depends on your needs and investment style. If you are active in the market and want to make quick profits, then MTF may be right for you. On the other hand, if you already have shares and want cash without selling them, then LAS will be more convenient. Before choosing any option, it is important to understand the interest rate, risk and loan terms thoroughly, so that a wise decision can be taken.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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