How to take leverage to go long in market (~2 years)?

Does anyone know how to get leverage upto 10-20 Lacs at reasonable rate of returns (say 9-10%)?
I want to take long position without liquidating current portfolio (~1.5 Cr) in Groww.

Sorry if I missed anything, its my first question in community.

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Jitubhai !
To me,train seems to be moving quickly, if u’ve contempleted something and if its not FOMO!
You might already have ideas on the return expectations!

Option 1
Open Loan Against Shares (LAS) account with any bank. Interest rates in range of 9-10%. You get
50-60% of the value depending on the stock. So for 20L you will need to pledge Shares worth 40L with the bank. Max allowed is 20L account with banks as per RBI Regulation. Not more than 1 LAS account is allowed by RBI. NBFC can open LAS account upto 5Cr, interest in range of 10-12%.

Option2
Open Margin Trading Funding account (MTF) with any broker, Interest rates in range of 10-16%. Pledge stocks with the broker & buy stocks on leverage.

In both cases interest will be charged only for number of days you use the funds.

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Nahi @LarryWink I dont want to liquidate my current portfolio. I am expecting 1 swing trading to close in 3-4 months and pay off loan

LAS rules under hdfcsec say : “Please also note that the loan is granted only for personal purposes. The loan amount cannot be used for speculative activities, any purpose linked to capital market activities or for any anti-social purposes.” not sure how they can track usage of funds … no idea…

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People interested to know - I got around 50% of money invested using loan against security (in my case mutual funds) at 9%. FYI.

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Can you elaborate?

Which broker, how was the process, all charges, interest paid monthly or quarterly, interest is charged from the day loan is given or when the funds are used, can the funds be parked in liquid ETFs if unused, can the loan be closed instantly, how does the loan/interest reflect in the P/L statement given?

I’m interested, hence these many questions.

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  1. I got offering from ICICI bank and Kotak bank.

  2. Process was entirely online. Took me 30 mins for KYC, 4hrs to get money online. Process charge 200 Rs.

  3. Interest paid monthly

  4. Interest charged from day loan is taken

  5. Money can be used for any personal usage.

  6. Loan can be closed instantly.

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So you got the loan from the banks, even if you did not have your MFs with Groww, and not with their own brokerage houses, so it does not matter? What funds did the banks kept as collateral while giving the loan, equity or debt? Did you have a savings account with the banks, or did you open one, or it is not needed?

Can you provide the details of your thesis w.r.t returns? What kind of return are you expecting from your trading bets, considering the subtraction of interest 9% from the return, and how many trades do you expect to take in 1 year?

In trending market, there are many opportunities, and the capital seems limited, so loan against holding can help. I take shorter term bets, so asking.

ICICI Direct
Margin Trading Funding - MTF Facility by ICICI Direct

ICICI direct tells me that it depends from stock to stock. For Titagarh for example, I will need to contribute equal funds. Like if I invest one lakh, they will also do so.
“Margin Funding (MTF) Pay Later
How does the interest charged for MTF work?
Interest will be calculated on the funded amount for the number of days you hold position in MTF. The number of days would start from the exchange pay-in date for the settlement of the respective transaction and charged till the date the funds are actually received i.e Payout date for the settlement.
Interest will be charged for funded amount or Shares as Margin amount blocked against your MTF positions for the number of days you hold said position.
The interest rate will be applicable as per your brokerage plan. You can reduce your MTF interest rate by subscribing to our different prime & prepaid plan.
The interest shall be charged per day basis including non-working days & it will be deducted directly from your bank/trading account. If you want to reduce the I-Sec funding, you can use the “Add Margin” option to add more initial margin to your position.”

Interest rates depend on the brokerage plan. They range from 9.95% to 19.95%

I have till now avoided leveraging, but if the market falls really badly I will try this.

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Then one has to have large caps which will be perceived as strong, so one does not need to put in less compared to an equal amount.

Why would you do this when the market falls?

I think of leverage only because the market is trending and has a chance of going up even more, thereby if I take more trades or bigger trades, I will reap benefits sooner than later. But if the market falls, valuations go down, there will be a lot of opportunities valuation-wise, and if we buy, we may have to wait for long period to see any momentum, so the interest paid will be essentially lost.

I am looking at this purely from a shorter term trading perspective, and not from an investing perspective.

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Hi. Please share the source for this. I did my research and did not find any such restriction.

Invest in stock derivatives instead of the stock, works only if it has derivatives.

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I am not so experienced in the ways of the market, and definitely not in leveraging.

"But if the market falls, valuations go down, there will be a lot of opportunities valuation-wise, "

I think it is not necessary that while the valuations go down,when the market falls the intrinsic value of a stock also goes down. My entire purchase philosophy is based on the Ben Graham’s loony Mr Market concept.

Forgive me if I appear to be talking down, but just to put my theory on record, the whimsical Mr Market may offer you a stock worth ₹100 to you in ₹50, and in a bearish mood, you may get that for ₹30. Real money in the recent history was made in 2020, when in the corona wave even the mighty collapsed. My Bajaj Finance which was at ₹4000+ just before the panic, collapsed to ₹2000. And taken in by ‘experts’ at a channel, I sold them off. That was indeed the time to buy more.

In fact, I had bought IDFC First Bank for about ₹20 then. But didn’t hold it due to lack of confidence. But my bets on TCS, Tata Consumer etc paid off because not only I was getting them cheap, they would continue to be in demand from the consumers.

In fact, I entered the PSUs and Titagarh/Texmaco because of the momentum, but became wary when their valuations touched sky-high. I have got out of the major momentum stocks recently, read the PSU, and Railway, and Power stocks in general, because I was not confident about their high valuations.

Remember, the very raison de tre of the PSU craze was the market ingnoring them?

I have reinvested the money I got from selling these, but imagine SJVN which I sold for ₹146, going down to ₹100? Impossible? But then it went from ₹40 to ₹146?

RVNL was also ₹60 or so a year back. Now, it is ₹280. If I get it for even ₹200, I am assured when buying it on leveraged money.

There are you know many stocks which make knowlegeable people anxious. IRFC’s flight from ₹28 to ₹160, while great for the investors, defies logic.

I agree with you that when a stock goes down from ₹100 to ₹60, you worry it will never regain the heights. And of course, the bear-market may last for two years.

So, it is which you approach the market, momentum or value investor.

Keep us abreast of how it goes.

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Problem with leveraging in down market is that if the market goes down further or doesn’t go up quickly, the value of shares pledged can go down and you will get a margin call. You will have to pledge more shares or the bank will sell them at rock bottom price. This will give a double whammy and can take you out of the game. It is very common in FNO traders.

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But then, the market may go down in the bull market also. There is no delimitation between the bull market and a bear market.

Wouldn’t a fall when you buy in a so-called bull market affect you?

Isn’t ‘buy cheap’ the mantra?

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I have been leveraging my portfolio and this has actually given me an edge while hunting on special situations & Small cap opportunities.
I mitigate the double whammy situations by dividing my Pf into large caps and compounders. Large caps is where i have subtle return expectations (Bluechip preferably). I have RIL, LTTS & Infy in my PF.
The lower returns should be compensated by the other half of the PF.
Also, There should be at least 25% more securities pledged up and above the bank’s 50% margin Or else they will destroy our cibil as well as spam us with margin requirements.
Used to have kotak & now moved to Yes bank due to service issues.

Just shared my exp

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In Bull market, the value of shares in holding is on the higher side. So to get the same amount, less shares are required in bull market compared to bear market.
The momentum traders will pledge the shares, invest with a stop loss, sell and exit quickly if the trade is not working according to plan. They will remove the pledge and pay small interest as the time is small.
The value investors on the other hand will require fund in down market. Higher quantities of shares will have to be pledged for same amount. Then they’ll wait for market to recover. Most probably the bottom formation will take time and increase the interest as the pledge has to be held for longer duration. Margin call risk increases with time as stop loss doesn’t work with value investing. Hence the saying " markets can stay irrational for longer than you can stay solvent".

Thanks for highlighting this risk. Can you please share any source or detailed information for this.

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My idea about leverage is to advantage of opportunities for shorter periods of time, shorter term bets. And as @akash_das has pointed out, if the value of pledged securities go down, there will be a margin call, or the lenders will sell the securities at the prevailing prices.

When market is rising, for trading bets, we can be wary of the rise and if we act fast, we wont lose much, even without stop loss in place. When market is falling, with investing, I cannot know when the up move will start, I may have to wait for months and months, so except for the fact that I had bought something at a lower price, I will have no other solace. With shorter term trades, there is a holding period and a stop loss, so the loss will be as per the plan.

Never thought about buying something for longer term with leverage. An idea to ponder, though.

Hi,

This is what I was told by my agent, " You can not have more than 1 LAS account" with banks. After you asked even I tried to find it, but clould’nt find anything. Sorry for incorrect information. My Bad.

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