A collateral amount is a type of loan for share that a broker offers to its clients in order to trade stock and shares. This is an added value service offered by only a few Indian brokers. However, not all brokers offer it due to the risks involved. It is simply a way to use shares from your Demat account as collateral for increasing your trading limits.
Both the client and broker benefit from collateral in the Demat Account. Investors can use the collateral in their Demat account that they don't intend to sell soon as collateral. This allows them to get a margin against the financial assets they have lying in their Demat account, instead of using cash to increase their trading limit. This service is charged at an agreed rate by the broker.
A Demat account holder might want to trade shares, but lacks liquidity. They can give their stock as collateral to their broker who will provide a loan to increase trading limits at a agreed-upon rate of interest.
After making payment to the broker, the Demat account holder may release the collateral. The broker may sell the shares or recover capital if the payment is not received.
Yes. Stocks held in a Demat account are eligible for a collateral benefit. To be eligible for this benefit, Demat account holders must maintain a certain cash margin equal to the collateral value.
A Demat account holder who has placed a collateral lock on their shares on T day may release that hold the same day, provided they don't have any positions for or against the shares. These shares will be released to the Demat account in such cases.
The account holder may withdraw all or part of these shares for T+1 days and beyond. Margin availability is required. By the end of each day, the shares will be transferred to your Demat account.