What is Pledge in Groww?

The pledge means borrowing money for trading against the investments. It's the extra amount that the investor gets for trading online. The pledge can be done for different holdings like stocks, mutual funds, ETFs, and SGBs. So let's check what is Pledge in Groww and how it works.

How Pledging Of Share Works?

In pledging the ownership is given to the lender by the shareholder. Here the investor can invest in a large amount of stocks. So that the shares can be taken as a security. Even if there is an individual investor then he can get the funds from a bank or a financial institution.

Haircut in Pledging

Haircut helps in saving the interests of the lender. The calculation of haircut is simple: just subtract the actual value from the collateral value.

For Example
If an investor has pledged shares of Rs 5 lakhs according to the market price. Also, the collateral value of the shares is less than 8 lakhs. And if the collateral value of a share is 6 lakhs. Therefore the haircut percentage in this case will be.

Why Promoters Pledge Shares?

Pledging of shares is done so that the investor can raise money safely. Investors usually go for the fund investment when sufficient funds are not available. That's why the investors promote pledge shares.

Benefits of Pledging Of Share

Low Interest Rates: The interest rates on pledging are less. Therefore the investor can have a good edge on investments.

Retain Ownership: Investors also receive dividends and they can keep investing in the shares as long as they want.

Tax Benefits: Investors also get relief because while doing it there is no need to pay the shares.

Easy Access Funds: With this, the funds are very easy to access. Investors can easily get the funds for the investment without affecting the share market portfolio.

Also, Check - What is MTF in Groww

Conclusion

Pledging is helpful for investors who want to invest in securities but don’t want to compromise with their long-term investments. Pledging has its advantages and disadvantages so it depends on the investor to use pledges carefully. So this is all about what is Pledge in Groww. Comment down if you have any queries regarding the article.