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Investing

Pledging Shares for Margin: How It Works

Pledge shares through your broker with a depository OTP to get margin after a haircut. The shares stay in your demat until you unpledge them.

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Written by Ananya Iyer

Published 5 November 2026·6 min read

On this page10 sections
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To pledge shares for margin, you pick holdings in your broker’s app and approve the request with an OTP from CDSL or NSDL. Your broker then gives you trading margin equal to the shares’ value minus a haircut. The shares stay in your demat account, marked as pledged, until you unpledge them. If you default, the broker can sell them.

Key facts

Item Detail
Rule Brokers can take shares as margin only through a “margin pledge” in the depository system (SEBI circular of 25 February 2020)
Your approval OTP on your registered mobile or email, or another verifiable method
Where the shares sit In your own demat account, marked as pledged to the broker and re-pledged to the clearing corporation
Margin value Market value minus a haircut set by the clearing corporation or broker
Cash rule for F&O At least 50% of margin must be cash or cash equivalents
Charges Set by the broker; Zerodha charges ₹30 plus GST per ISIN per pledge request
If you default The broker can invoke the pledge and sell the shares

What a margin pledge is

Before SEBI’s 2020 framework, many brokers took clients’ shares into their own “client collateral” demat accounts. SEBI banned that. Brokers now accept shares as collateral only through a margin pledge, created under Section 12 of the Depositories Act, 1996.

The chain works like this. You pledge shares to your broker’s “Client Securities Margin Pledge Account”. The broker re-pledges them to its clearing member, which re-pledges them to the clearing corporation. SEBI requires the full trail to show in your demat account. Your pledged shares can only back your own positions.

Ownership does not change. SEBI’s circular says an off-market transfer changes ownership and cannot be treated as a pledge. As the owner, you remain entitled to dividends. Brokers differ on how they handle bonus shares on pledged stock, so check yours.

How to pledge shares

The exact screens depend on the broker. Zerodha’s flow is typical:

  1. Open your holdings in the broker’s app or back-office site and choose Pledge.
  2. Select the approved stocks, ETFs or fund units you want to pledge.
  3. Enter the quantity for each, or pledge the full holding.
  4. Accept the pledge terms. SEBI requires the form to include your consent to re-pledging.
  5. Approve the request with the OTP sent by CDSL or NSDL.
  6. Check your funds page for the new collateral margin. Zerodha says it shows within about 15 minutes.

Only securities on your broker’s approved list can be pledged. Zerodha accepts requests between 8 am and 5 pm on trading days. Shares bought recently can be pledged only after they settle; see our note on T+1 settlement.

How to unpledge shares

  1. Choose Unpledge on the same holdings screen and enter the quantity.
  2. The broker runs a margin check. If your open positions need that margin, the request can be refused or held.
  3. The clearing corporation releases the re-pledge after blocking other free collateral of the clearing member, and the broker then releases your pledge.
  4. The shares show as free in your demat account.

Timing depends on the broker. Zerodha says shares unpledged before 4 pm are available the next day. You do not always need to unpledge before selling. Since 5 September 2025, depositories must offer a single “pledge release for early pay-in” instruction when you sell pledged shares.

Haircut and margin value

A haircut is the percentage the clearing corporation knocks off a security’s value before counting it as collateral. It covers the risk of the price falling before the shares can be sold.

Collateral Haircut in NSE Clearing’s collateral FAQ Counts as
Cash, bank FDs, bank guarantees 0% Cash equivalent (FDs and guarantees)
Government securities, T-bills, SGBs 2%, 5% or 10% Cash equivalent
Liquid, overnight and gilt fund units; liquid ETFs 5% or 10% Cash equivalent
Shares and equity ETFs Based on the stock’s VaR margin (higher of VaR and 20% in the table) Non-cash
Other mutual fund units Higher of VaR and 9% Non-cash

Only shares with high liquidity qualify for the clearing corporation’s list. Brokers can use their own list and may apply a larger haircut.

Example: you pledge shares worth ₹2,00,000 and the haircut is 20%. Your collateral margin is ₹2,00,000 × 80% = ₹1,60,000. If the share price falls 10% to ₹1,80,000, the margin drops to ₹1,44,000 at the same haircut.

The 50% cash rule

NSE Clearing requires cash and cash equivalents to make up at least 50% of a clearing member’s liquid assets. Brokers pass this on: for F&O positions, at least half your margin must be cash or cash-equivalent collateral.

Suppose a position needs ₹1,00,000 of margin. Pledged shares can cover up to ₹50,000. The other ₹50,000 must come from cash or cash-equivalent collateral, such as pledged liquid fund units. Our futures and options basics page explains how margins on these positions are set. Zerodha says pledged margin can be used for equity intraday trades, futures, and buying or writing options.

Charges

ItemDetails
Pledge feeset by each broker. Zerodha charges ₹30 plus 18% GST per ISIN per request, whatever the quantity.
Unpledge feeZerodha charges nothing; other brokers may.
Interestsome brokers charge interest if you use pledged margin for delivery trades or if your cash balance goes negative. Read your broker’s tariff.

Risk if margin falls short

Pledged margin shrinks when prices fall, and haircuts can rise in volatile markets. If your margin drops below what your positions need, you face three risks.

ItemDetails
Square-offthe broker can close your positions without waiting for you.
Invocationif you still owe money, the broker invokes the pledge. Since 5 September 2025, invoked shares are blocked for early pay-in in your demat account and sold, instead of piling up in the broker’s account.
Penaltythe clearing corporation charges the broker 0.5% or 1% of the shortfall. The rate rises to 5% a day if the shortfall runs past three consecutive days, or past five days in a month. NSE’s FAQ lets brokers pass this penalty to you only in specific client-caused cases, such as a bounced cheque or a broken hedge.

Pledging lets idle shares support trading, but it can turn a bad trade into a forced sale of long-term holdings. Keep a cash buffer and track your margin daily. Profits and losses from F&O are taxed as business income; see our F&O taxation page.

Frequently asked questions

Do I still own shares I pledge for margin?

Yes. The shares stay in your demat account and are only marked as pledged. SEBI says a pledge does not change ownership, unlike an off-market transfer.

Do I get dividends on pledged shares?

Yes. You remain the owner, so dividends are paid to you. Check with your broker how bonus shares on pledged stock are handled.

How much margin will I get by pledging shares?

The market value minus the haircut. At a 20% haircut, shares worth ₹1,00,000 give ₹80,000 of margin.

Can I use pledged shares to buy other shares for delivery?

Usually not without cost. Brokers generally let pledged margin back intraday and F&O positions, and some charge interest if it funds delivery buys.

Can I sell pledged shares directly?

Many brokers let you sell them without a separate unpledge request. Since 5 September 2025, depositories have supported a single pledge-release-for-pay-in instruction for this.

What is the difference between a margin pledge and a loan against shares?

A margin pledge gives you trading limits with your broker. A loan against shares is a pledge to a bank or NBFC that gives you cash and charges interest.

Sources

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