Equity shares of a company give you partial ownership of the company’s stake. Moreover, the shares are considered assets since they have a financial value and can generate returns.
Like other assets, you can pledge your shares to obtain funds or loans for trading. This is called Margin Trading Facility (MTF). Share pledging is an activity wherein you put your shares as collateral for the MTF. The shares are pledged in the name of an individual or entity, and you get a loan against their market value. You can use the loan to increase your trading volume and get more returns.
The opposite is true for share unpledging. Let’s understand what it is all about.
What is share unpledging?
Share unpledging is the act of removing the pledge made on the share. When you repay your dues and clear the outstanding loan against the pledged shares, the shares will be unpledged. Under the Margin Trading Facility, when you release the pledged shares, it would be referred to as share unpledging.
What is the charge for unpledging?
The charge for unpledging depends on the stock broker with whom you pledge the shares. Different brokers have different charges. You must check the charges with your broker when you unpledged the shares. For instance, Motilal Oswal charges ₹20 + GST for share unpledging per-ISIN basis.
What are cash shortfall charges?
When you pledge your shares, the value of the pledged shares is calculated using the market value of such shares. Since the market value constantly fluctuates, you must always maintain the collateral’s value. If the market value falls and you don’t maintain sufficient funds to meet the deficit in the collateral’s value, you will incur a cash shortfall charge.
When will I receive the margin after pledging my holdings?
After pledging your shares, the time for receiving the margin depends on your broker and when you placed the pledge request. Usually, if you pledge your shares before 3:30 or 4 pm, you can receive the margin within the next trading day. For pledging done after 4 pm, the margin can be credited after T+2 working days.
For instance, say you place a pledging request at 2 pm on Friday. In this case, you will receive the margin on Monday. However, the margin would be allowed on Tuesday if you place the request at 5 pm on Friday.
Why is my unpledged request failing?
The unpledged request might fail if the collateral you used is used for open positions. To proceed with the unpledged request, you must either pay the collateral’s value in cash or close your position so the collateral can be freed up.
When does my unpledged request get processed?
The unpledged request gets processed within a couple of days, depending on when you place the unpledged request. For requests placed before the close of the trading session, i.e., before 3:30 pm, the unpledged request gets processed within the next trading day. However, if the request is placed after the market closes, the request is processed on the day after the next trading day.
For instance, if you place an unpledged request at 3 pm on Thursday, the request will be processed by Friday, before the market closes. However, if you place the request at 4:40 pm, the processing will be pushed to the next trading day. The request would be processed since Monday would be the next trading day.
To summarise, if you have pledged your shares, unpledged them when you have capitalized on the trading potential of the margin money. Pledged shares are a liability and unpledging converts them into assets. Know the various aspects of unpledging and the charges involved so that you can make the right trading and investment decision.
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