MTF Charges Explained: The Real Cost of Margin Trading Facility

The Real Cost of Margin Trading Facility (MTF) looks attractive because it increases your buying power. But most traders ignore the most important part - MTF Charges. MTF interest rates apply on the broker-funded portion, which means you can purchase shares even if you don't have the full capital

Most new traders focus only on the "extra funding" they are getting. But in reality, the difference between a smart MTF trader and a losing MTF trader is simple: who understands the total cost of the trade.

1) Interest Rate: The First and Biggest Cost in MTF

Since MTF is funding provided by the broker, interest is charged on the funded amount. Just like comparing banks before taking a home loan, traders must compare brokers before using MTF.

Among India's well-known brokers, interest rates and charging structures differ widely. For example, Dhan has a slab based interest structure, where the interest rate changes depending on how much money is funded:

Up to ₹5,00,000 funded → 12.49% p.a.
₹5,00,000.01 to ₹10,00,000 → 13.49% p.a.
₹10,00,000.01 to ₹25,00,000 → 14.49% p.a.
Higher slabs increase further
This slab system is clearly mentioned in Dhan's MTF page.

Many retail traders fall in the ₹5 lakh capital range (or below). In that segment, slab-based pricing can often work in favour of the trader because funding cost stays relatively competitive at lower funded amounts.

Watch Our MTF Explained for Beginners Video

2) The "Low Interest" Marketing Trap

Some brokers advertise MTF interest rates below 10%. While it looks appealing, it often comes with conditions such as:

Premium plan requirement,
Very high turnover,
Or extremely high portfolio/trading value (sometimes in crores).

For an average trader operating with ₹5 lakh or less, these low rates are usually not applicable. The real decision should be based on what interest rate applies to your expected capital and funded amount, not a marketing headline.

3) Interest Is Only One Part - Hidden Charges Still Apply

Even after choosing a broker with a good interest rate, the cost story is not complete.

MTF provides funding, but when you buy and sell shares, standard market charges still apply, including:

Brokerage
GST
SEBI charges
Exchange transaction fees
STT (Securities Transaction Tax)
DP-related charges in some cases

In short: MTF does not replace normal trading charges. It adds an interest layer on top of them.

Zerodha's official MTF calculator clearly breaks down these costs, including interest per day, brokerage, and pledge/unpledge charges.

4) Pledge & Unpledge Charges: Hidden Costs Most Traders Ignore

In MTF trades, pledging is compulsory because the broker needs security for the funded shares. This creates hidden costs that do not exist in normal delivery buying.

For example, Zerodha mentions ₹15 + GST per ISIN per pledge request and the same for unpledge. Upstox also highlights pledge/unpledge costs and interest structure as part of its MTF charges.

Angel One also lists interest and charges for MTF, including the daily interest rate structure on borrowed amount. These charges may look small individually, but over time and across multiple trades, they compound into a meaningful expense.

5) Real-World Example: How Hidden Charges Reduce MTF Profits?

Consider a simple example:

A trader buys Reliance shares using MTF, invests ₹32,000 from their own pocket, and the broker funds the rest. Later, the shares are sold. This is not just "buy and sell" it becomes a complete cycle where costs hit you multiple times:

Buy-side brokerage + taxes
Sell-side brokerage + taxes
Pledge charges
Unpledge charges
Interest for each day the funded amount was used.

In many practical cases, the total charges for a complete MTF trade can easily reach ₹300-₹500 or more, depending on trade value and broker pricing.

This is why ignoring hidden charges is the most common mistake made by new MTF traders. Many people see profit on price movement, but after charges and interest, the net profit becomes very small or even negative.

Conclusion:

MTF can be a powerful tool when used correctly. But it should always be approached like a loan-based strategy, where cost control matters as much as entry timing.

A trader with ₹5 lakh or less should focus on: