Quarterly settlement of funds & securities

December 18, 2016
Funds and Margins
quarterly-settlements

Traders,

We keep getting queries on quarterly settlements, hence the detailed explanation below.

What is Quarterly Settlement of Funds & Securities?

Back in 2009, the market regulator, SEBI, introduced the policy of Quarterly Settlement of Funds & Securities. According to the policy, brokerage firms are required to transfer back all unutilized sums of money kept in the client’s trading account back to the client’s bank account at least once, in a period of 90 days. Similarly, if any client securities are held with the brokerage firm, such securities need to be transferred back to the client’s demat account, once in 90 days. Client securities (Stocks, MF, etc) could be lying with the broker either when they are pledged for trading in the F&O segment or when such securities aren’t fully paid for by the investor.

 

Which accounts need to be settled?

As explained above settlement is essentially the act of transferring unused funds lying in the client’s trading account back to the client’s bank account. To avoid operational inconvenience, SEBI has relaxed the rules for accounts with balances less than Rs.10,000 (Rs.50,000 for commodities), these accounts are deemed settled without funds having to be transferred back.

Additionally on the day the brokerage firm is settling funds, the brokerage is allowed to block upto 125% of any margin being used for F&O position held by the client to ensure that there is enough funds to manage any MTM loss, and only transfer back the rest of unutilized funds.

 

How does Settlement work at Zerodha?

Settlement of stocks

Unlike traditional brokers, at Zerodha we don’t hold back client stocks in our pool account. This is because currently we don’t offer margin trading facility and hence all the stocks are fully paid for. Whenever our clients buy stocks, they’re transferred to their respective demat accounts. (P.S: We’ll be starting margin trading facility in the future :)). Stocks that require settlement are those pledged by clients as margin for trading F&O.

If stocks are pledged but margin is not utilized, stocks are unpledged and transferred back to the client demat account once in a quarter. A new pledge request has to be initiated if the client wants to use them as collateral for trading F&O again.

Settlement of Funds

On the day of settlement, all excess unutilized funds in the last quarter (90 days) are transferred back to the client bank account through NEFT/RTGS. RBI accepts RTGS requests until 05:00 pm and NEFT requests till 07:00 pm. To determine the excess funds that need to be transferred, the daily trade process needs to be completed which happens around 07:00 pm on every trading day.

Since the cut off time for NEFT would have lapsed by the time trade process for the day completes, such transfers get processed only the next working day. While credit through RTGS (for funds > 2 lacs) is much faster, NEFT can sometimes take upto 8 working hours. The NEFT service also remains closed on every second and fourth Saturday owing to the banks being closed.

Operational inconvenience due to settlement

Once funds are received to the client’s bank account, the client will have to initiate a transfer back to the trading account in case he wishes to continue trading. One may have to incur costs for transferring funds back to the trading account in the form of bank transfer or payment gateway charges. More importantly a client also gets exposed to a situation where the money gets stuck in the entire to & fro process when a trading opportunity arises.

Similarly, when unutilized pledged securities are transferred back to the demat, there could be upto 2 days turnaround time before they get pledged back to obtain margins.

On several occasions in the past, we’ve received complaints from clients ruing the loss of trading opportunity because of this. However being a SEBI regulated intermediary, we’ve to abide by the rules and regulations set forth by the regulator.

 

Is there a way I can ensure that I don’t miss any opportunity?

Yes. If a client hasn’t utilized all funds for an overnight position in the trading account even for one day in a quarter, he could buy liquid bees or liquid mutual funds any one day in the quarter and sell them the next day morning as soon as market opens. With liquid mutual funds, this trade can be done is such a way that the funds get debited only after market closing and credited before next day opening. Liquid funds are fixed income instruments and have no brokerage (at Zerodha) or STT charges. This way a client can ensure that funds are never blocked when markets are open and also not have to bear any bank or gateway charges.

If the client doesn’t have the bandwidth to do this on their own, client can request us to track, remind, and place an order for this. To do this, visit q.zerodha.com/profile and set preference as ‘Buy overnight liquid fund’ as shown below.

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In case of pledged securities, the only way out of not having to go through the entire pledge/unpledge requets would be to take a F&O position utilizing the collateral value completely on at least one day during the quarter.

 

Happy Trading,

Team Zerodha

Nikhil A

Corporate Communications Manager @ Zerodha, perpetual student of economics, an eccentric Grammar Nazi, rock lyrics police and voracious reader.

60 comments

  1. sunitha says:

    Thanks for the clarification, I got panicked by seeing mails that someone has invested in Reliance MF from Zerodha without my knowledge.

  2. vijay says:

    can u avail this facility

  3. Rajiv says:

    Can you please share the dates when this Quarterly settlement will take place. Thanks.

  4. Manujanshu says:

    Thanks for the info and the pain you guys take to inform traders & investors is really appreciative. Advice for Nikhil, don’t be a Grammar Nazi.

  5. Sujith says:

    How I will know the pay out date? I believe it is different for each client right? Is it mentioned anywhere in Pi or Q?

  6. Sujith says:

    How to know the settlement date? will it happen on specific day or qtrly settlement is different for each client?

  7. Srinivas says:

    What happens if say the value of my pledged securities is about 16 Lacs and I use only about 5 Lacs for overnight positions and the rest is in reserve for fresh trading opportunities.

    • Venu says:

      If you haven’t used full collateral margins, then the securities will be unpledged and transferred back to your account. You can pledge again, if you wish to.

  8. Siddharth Jain says:

    Would this overnight fund buying mean that it will be considered speculative buying and hence, one may be classified as Trader instead of investor?
    A person who does not deal in F&O or day trading would NOT like such a thing to happen automatically as it can lead to liability in terms of filing ITR4 vs ITR1/ITR2.

    Could you please clarify?

  9. gaurav says:

    thanks zerodha for informing clients about this and other things, like the excess stt on option on expiry day that was an eye opener

  10. surendar says:

    Good info. This time, while Zerodha did the buy, I had to call and ensure the trading amount got credited back. can you ensure this process is also automatic?

  11. Piyush says:

    What will be cost of this transactioin ? What are the chance of loss due to difference in NAV of debiting and crediting ? or There will be no loss. eg. A account has one lakh rupees, you will debit one lakh rupees in evening and credit one lakh rupees in next day morning without loss of single rupee.

    pls reply.

  12. R.Manojmurthy says:

    Sir am day trader 15000 rs margin so what you i do?

  13. KA says:

    Dear Sir,

    Investing the surplus funds in liquid funds or liquidbees overnight is a welcome idea. But, pls confirm whether we will lose any value, due to change in NAV value of MF units. Shall I assume that Whatever, we are investing overnight will get credited into the account the next day morning,

    Regards,
    KA

  14. denny says:

    what happens to the interest earned for that short time from the liquid fund ?

  15. firoz says:

    can i buy stock today with my funds?

  16. amol b babhulkar says:

    what is date of my quarterly settelment

  17. Bhavya says:

    Past performance of liquid fund. Is it in line with FD interest rates

  18. Chandra G Dilip says:

    I want to open an account.
    As i am interested in F& O trading.

    Please let me know the margin amount that i can use if i have 1 lac cash in demat amount.??

    And also in case if i hold shares of about 1 lac in demat??

  19. Jinesh says:

    “In case of pledged securities, the only way out of not having to go through the entire pledge/unpledge requets would be to take a F&O position utilizing the collateral value completely on at least one day during the quarter.”

    1) Does this mean that, if collateral value was completely used in ‘any one day’ during quarter, pledge/unpledge hassle will not happen ?

    2) If collateral value is partially used during quarter, how will quarter settlement process work ?

    • Venu says:

      1. Yes
      2. If it’s used partially during the quarter, the day your account is due to be settled, the unused collateral stock will be transferred back to your account.

      • Jinesh says:

        Ok.

        1) So, if my collateral value is Rs.100,000 and have used max Rs.80,000 on any single day in quarter. 20k unsued collateral will be transferred back ?
        2) how can I know exactly how much collateral value I have used in a quarter ?

        • Venu says:

          No, you could have used collateral worth 80k on an earlier day. What gets transferred back is the unused collateral on the day your account is due for settlement. You can track the margins from your ledger.

  20. Aniruddha says:

    Can I enable automatic purchase and subsequent day sale of liquid MF on daily basis from zerodha account, something similar to what happens once in a quarter.

  21. Biswajit says:

    I notice that Zerodha does not have provision for Agri scripts such as Jeera, Soya bean, Mustard seed etc.

    1. Do you have specific reason for this?
    2. Do you intend to start these in future?

    • Firstly, we have very few people trading agri and secondly risk management on these contracts are extremely tough. Very tough to take the risk with our razor thin margins. No plans to start as of now.

  22. Harish Balaji Ramachandran says:

    For ‘Buy overnight liquid fund with no transaction costs’ option, if I have Rs. 10,000 as balance then I hope I’ll be credited back not less than Rs. 10,000 back to my account automatically the next morning that will be available for investment. I understand that you have mentioned that there are no charges by Zerodha. Is there any additional cost involved like DP charges etc., since the fund will be debited/redeemed from demat account?

  23. Dinesh says:

    1: Other trading firm maintains fixed dates for Quarterly settlement.
    2: if you guys buy overnight liquid funds how I am going to check it via Ledger.

    • Venu says:

      1. It isn’t possible to have a fixed date, since ledger balances change everyday.
      2. There would be debit and credit entries of the purchase/redemption on your ledger.

  24. PANKAJ KUMAR GUPTA says:

    i am a client of zerodha from last 1.5 years . But i am listening this rule 1 st time . i haven’t recieve all fund in my bank account . never . why?

  25. Akash Malhotra says:

    Does Zerodha provide the facility of parking your money in overnight liquid funds while waiting for price of a stock to correct? Back in 2015, BSE introduced overnight liquid funds on its Star MF platform with the same motive.

  26. Ritesh says:

    Hello,

    What exactly happens when we select “Buy overnight liquid fund”, since the liquid fund price changes everyday, say the NAV price increased by 0.02%, if my free balance is Rs 20000, will it increase to 20004 or it will remain 20000 only.

    The reason for asking is i have this option enabled, but didn’t notice any change in free balance, How to check this transaction…

    Regards,

  27. Swarna says:

    This is absurd mainly because it was not informed (at least to me) . Why are the contact details taken if you are not using those to share such important information.
    I was shocked to get the MF statement at my address and I was about to take it up with SEBI as I was not aware of any such thing happening from Zerodha. And that too this happening in December when demonetization effects were in its peak, I thought someone has used my account to turn their black money into white as these transactions are shown in PHYSICAL mode !!!
    Suggestion: When you want to introduce any such new feature, ensure that it has been communicated with customers and don’t turn them ‘on’ by default. Let the customers subscribe to it.

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