What is Pledging?

What is Pledging?

Pledging is using an asset as collateral to secure a loan. It is most familiar with using securities such as stocks, bonds, or mutual funds to obtain a bank or financial institution loan.

Here’s how pledging works:

·       You give ownership of the stocks or bonds from your demat account to the lender for the loan duration.

·       You get a loan secured by your asset, and you get your asset back on complete repayment.

·       In case of payment failure, the lender holds the right to recover their money from the sale of assets.

For instance, if you have shares worth ₹1,00,000 in your 5Paisa account you can pledge them to access the collateral margin.
The margin you receive is completely determined by the stock's haircut set by exchange. If your pledged stock has a 20% haircut, you will receive ₹ 80,000 as collateral margin in your trading account.

Note: The pledged shares remain in your demat account and not transferred elsewhere.



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