What is a Haircut? Where can I see the haircut percentage applicable on my holdings while pledging?
As a trader, you can pledge your holdings to get collateral margins for trading.
When you pledge securities as collateral, the value of these securities is reduced by a certain percentage (as per exchange norms) to calculate the amount of margin/funding to be extended to you. This percentage reduction in the market value of your collateral is called a Haircut. It is applied to account for potential downward swings in the collateral security's price.
Hence, the haircut value is deducted by Geojit to give you trading margins against pledged holdings. The haircut value is calculated as follows:
| Security Type | Haircut (%) |
|---|---|
| Stocks | Minimum 10%; varies daily scrip-wise |
| Mutual Funds | 30% |
| Liquid BeEs | 7.5% |
| Bharat Bonds, SGBs | 10% |
The Margin Value column under the Pledge window on MyGeojit shows the margin available if the concerned security is pledged, after accounting for the applicable haircut.
For example:
| Security Type | Haircut (%) |
|---|---|
| ITC shares in demat account (pledged) | 100 shares |
| Previous day's closing price | Rs. 250 per share |
| Market value of pledged shares | Rs. 25,000 |
| Exchange stipulated haircut % for ITC | 10% |
| Haircut amount | Rs. 2,500 |
| Available collateral margins (against pledged holdings) | Rs. 22,500 (25,000 - 2,500) |
Your collateral margin value will vary daily based on market price fluctuations of the pledged securities.
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