How to Pledge Shares in Zerodha?

If you’re a Zerodha user with a portfolio of stocks, ETFs, or certain government securities, you have the opportunity to unlock additional trading capital. Pledging your shares allows you to use them as collateral to obtain margin, expanding your trading opportunities. In this guide, we’ll cover everything you need to know about pledging shares in Zerodha.

How does Share Pledging Work?

Pledging shares means temporarily transferring ownership rights to your broker (Zerodha, in this case) in exchange for a margin. This margin can be used for various trading activities like:

• Equity Intraday Trading: Expand your day trading potential with additional funds
• Futures and Options (F&O) Writing: Enhance your ability to sell options contracts for potential income generation. Note that collateral cannot be used for commodity F&O trading.

Important Note: Remember, while you technically transfer ownership rights, you still own the shares themselves. If the value of your pledged shares falls, the broker may ask you for additional collateral to maintain minimum margin requirements.

Eligible Securities for Pledging on Zerodha

Not all investments can be pledged. Zerodha provides an up-to-date list of approved securities with their corresponding “haircut” percentages (the percentage deducted from the security’s value to determine your margin). Some common eligible instruments include:

• Stocks from a specified list
• Exchange-Traded Funds (ETFs)
• Sovereign Gold Bonds (SGBs)
• Treasury Bills (T-Bills)

You can find the updated list on Zerodha’s website.

Process of Pledging Shares on Zerodha

Pledging shares in Zerodha is a simple process:

1. Zerodha Console: Log in to your Zerodha Console account.
2. Portfolio and Holdings: Navigate to the “Portfolio” section and then to “Holdings.”
3. Select the Security: Choose the security you want to pledge from your holdings.
4. Pledge for Margin: Click on “Options” and select “Pledge for margin.”
5. Quantity: Enter the quantity of shares you want to pledge.
6. Terms and Conditions: Agree to the terms and conditions of pledging.
7. Submit: Submit your pledge request.

Authorizing the Pledge on CDSL

After submitting your pledge request on Zerodha, you’ll receive a notification from the Central Depository Services Limited (CDSL). Follow these steps to authorize the pledge:

1. CDSL Notification: Check your registered email or mobile number for the notification.
2. CDSL Portal: Log in to the CDSL portal using your PAN details.
3. Authorization: Select the pledge request and authorize it. You will likely need to generate and enter an OTP for security.

Things to Note:

• Pledge Processing: Zerodha processes pledge requests twice daily, at 2:00 PM and 5:00 PM on trading days.
• Pledge Authorization Deadline: You must authorize the pledge on the CDSL portal before 7 PM for the margin to become available the next trading day.
• Costs: Zerodha charges a fee of ₹30 + GST per pledge request, regardless of the quantity.
• F&O Segment Requirement: The F&O segment must be active on your Zerodha account to pledge shares.

Using Your Collateral Margin

Once your pledge is successful, you’ll see the additional margin reflected in your Zerodha Kite account under the “Funds” section. Remember these key points:

• Exchange Margin Requirements: Exchanges mandate that 50% of your margin for futures and options positions must be in cash (or equivalent). The remaining 50% can be from your collateral margin.
• Delayed Payment Charges: If you have insufficient cash for overnight positions and your balance is funded using collateral, you may incur delayed payment charges.
• Negative Balances: You cannot use collateral margins until you clear any negative balances.

Additional Considerations & Benefits

• Instant Sale of Pledged Shares: Zerodha lets you sell pledged shares instantly without an un-pledge request.
• Pledging Mutual Funds: You can also pledge eligible mutual funds for collateral margin following a similar process
• Power of Attorney (POA): If you haven’t submitted a POA, you may need to authorize transactions using your CDSL TPIN.
• Physical Delivery: Pledged stocks may be subject to physical delivery for certain futures and options contracts.

Conclusion

Pledging shares can be a strategic tool for traders looking to capitalize on market opportunities. By understanding the process, costs, and associated risks, you can leverage this feature on Zerodha to potentially enhance your trading capabilities. Here’s a quick recap of the advantages and points to consider: