How long can you hold shares under margin trading (MTF)?

Margin Trading Facility (MTF) has become a powerful tool for traders seeking leverage. Initially, they have to pay a fraction of a stock's value, while the rest is provided by the broker.

The first question most traders ask themselves is: "How long can I hold MTF shares?". It’s a valid question because upto 75% of the position is funded by the broker and there’s an interest attached. With this, comes pros and cons.

Since holding a leveraged position carries risks in the form of interest costs, margin calls, and forced square-offs, it becomes extremely important for traders to understand the mechanics, rules, and implications associated with MTF.

In this blog, we will explore how long you can hold MTF positions on Dhan, what the rollover/renewal options are, what triggers auto-liquidation, how interest and margin maintenance matter, and what savvy traders should do to manage these leveraged exposures.

What is MTF?

Margin Trading Facility lets you pay only a part of the amount for buying shares and get the rest funded by your broker. For example, if a stock is eligible for 4X leverage, i.e., 25% margin, you put in ₹25,000 and your broker funds ₹75,000, hence giving you exposure of ₹1 lakh.

Key MTF features on Dhan:

• Up to 4x leverage on 1,700+ stocks. 
• The interest on the margin funding is calculated daily, starting from the T+1 settlement. 
• You can hold such shares as long as you maintain the required margin, per Dhan’s rules. 

Is there a fixed holding period?

By  now, you must’ve understood why the question of "How long can I hold MTF shares?” is very important in the context of MTF. 

Since most brokers either borrow the money or use their treasury to fund their end of the position, they put a cap on the holding period. This is done to limit their risk.

MTF on Dhan is different. On Dhan, you can hold your MTF positions for as long as you want, which is why it is termed as “unlimited holding period”. The only caveat is that you must maintain the required margin (and other rules). 

This means you are not obliged to sell within a given time frame. That said, you as a trader must evaluate your position and strategy regularly in order to ensure that you manage the upside and downside of MTF.

What are the key conditions for holding MTF positions?

Here are some conditions on Dhan for holding MFT, which indicate how long you can hold and when you may be forced to exit:

1. Margin / holding coverage ratio

Dhan tracks a “Holding Coverage Ratio” defined as:

Holding Coverage = (Combined Ledger + Total Stock Value) ÷ Total Stock Value × 100%

If this falls below 20%, Dhan may auto-square your positions. For example, if you have purchased stocks using MTF and the value of your stocks falls in such a way that your ledger + value gives coverage under 20%, then your holdings are at risk of margin calls.

2. Interest cost

Even though you can hold your MTF positions indefinitely, you pay daily interest on the funded portion until you exit. Over time, interest erodes gains. If the stock doesn't appreciate or one holds it too long, you may run the risk of potential losses.

3. Eligible stocks & leverage limits

Only the approved list / Group 1 Stocks available for MTF. There could also be exposure limits per user and per single stock, for example, single-stock exposure capped at ₹10 lakh for certain holdings. 

4. Auto square-off / forced exit triggers

Dhan's policy says that if holding coverage falls below 20%, your shares may be auto-liquidated. Also, if the stock is removed from the MTF eligible list or your margin isn’t maintained, Dhan reserves the right to square off the positions.

How to view holding duration and cost?

Dhan provides the facilities to aid your evaluation of the holding period and costs:

• MTF Calculator: You can input the holding period in days, quantity, etc., and you can see the interest cost and funded amount.
• Daily interest: For example, Dhan’s rate of 0.0342% per day on the funded amount is mentioned on its platform to maintain transparency with traders.

These tools allow you to see it clearly when you are in a leveraged position and the additional amount you are paying.

When does holding too long backfire?

Retaining MTF indefinitely can be permitted, but savvy traders use it as a conditional long position. Risks of transitioning from allowed to problematic are:

• Interest load mounts on long-term holdings. Assuming an investment of ₹3 lakh with interest of 12.49 p.a., then after one year, the interest is ≈ 37,470. If stock returns are lower, you’ve lost real value.
• Correction of the markets can lead to a margin call. When the stock decreases, your holding coverage might reduce to less than 20% which results in a forced exit if you didn’t invest more funds.
• Opportunity cost also plays a big role. For example, your capital may be locked under leverage while better opportunities exist, but you can’t avail them as your capital is locked in MTF.
• Psychological trap. Many traders, in the hope that the market may reverse, hold MTF positions for too long, which in turn makes their losses go up.

Therefore, unlimited holding is unlimited in theory, but discipline is required in the real world to make attractive returns using MTF.

Strategy for holding MTF positions 

The following 4-step plan will help you  manage how long you hold your positions under MTF:

1. Set an initial time horizon

Choose whether it is a short-term (weeks) or a medium-term (months) idea. Although unlimited is possible, you should review regularly.

2. Calculate interest costs before you enter MTF positions

Calculate 30 days, 60 days, and 90 days' interest costs through MTF calculators. When your anticipated return < cost + buffer, reconsider your investment decisions.

3. Track margin coverage daily

Monitor your holding coverage ratio daily. When it approaches or goes below the range of 20%, add extra funds or reduce the position to prevent auto-liquidation.

4. Have an exit plan

Plan to exit or convert to delivery (pay off margin funding and hold unleveraged), either when your target is hit, or when your expected return vs cost is unfavourable. 

To wrap up

Although the concept of holding positions with MTF might be appealing, the reality is that leverage with MTF on Dhan comes with conditional freedom to hold like until your margin and your risk metrics are within range, you can hold your positions with MTF.

With MTF, you can benefit through additional exposure and the flexibility of the portfolio, as long as you use it with prudence. Discipline is the difference between gains and losses. 

Use MTF to improve your advantage; however, be mindful. You can be free to hold longer positions on Dhan, but with margin, cost awareness, and proactive risk control.

Here are some frequently asked questions:

1. What is the maximum time I can hold the shares under MTF on Dhan?

Dhan allows traders to hold MTF-funded shares indefinitely, provided that you maintain the required margin, pay interest on time, and meet the holding coverage ratio. There’s no predefined expiry date. Dhan keeps track of your margin status. In case your holding coverage ratio drops to less than 20%, Dhan has the right to square off your holdings to limit losses.

2. What is the holding coverage ratio, and why do we need it?

The Holding Coverage Ratio evaluates the safety of your MTF holdings. It is calculated as:

Holding Coverage = (Combined Ledger + Stock Value)Total Stock Value×100

On Dhan, you would have to hold at least 20% coverage. If this ratio falls below the threshold, Dhan will automatically liquidate your holdings to avoid losses on the shortfall of margin. 

3. How is interest calculated for MTF positions on Dhan?

The interest is calculated on the amount that is funded by Dhan on a per-day basis and is debited at the end of the month from your account. The current MTF interest rate offered by Dhan starts from 12.49% per annum, or approximately 0.0342% per day. Through the Dhan MTF calculator, you can estimate the interest cost you pay before using MTF. This will allow you to plan your holding period and prevent cost overruns.

4. Do I have the flexibility to convert my MTF holdings to delivery?

Yes. Dhan allows you to change MTF shares to delivery at your own will. After paying back the amount funded and interest, your holdings are converted to delivery holdings. This alternative is especially helpful when you intend to hold the stocks for the long term without leverage.

5. What happens if my MTF stock becomes ineligible or my margin falls short?

Dhan has the authority to issue a margin call either when a stock is removed from the Dhan eligible list of MTF or when your margin coverage falls below the required minimum. If you fail to top up the margin by the due date, your holdings will be automatically liquidated to settle exposure.