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Best Defence Sector Mutual Funds in India

India’s defense budget increased rapidly in 2025 and this is why defense sector mutual funds have become a big topic of discussion among investors today. If you want to know which is the best defense mutual fund or what is the complete defense mutual fund list, then this guide is for you. Here we will understand how mutual funds investing in the defense sector can bring long-term strength to your portfolio and why mutual funds in the defense sector are being considered as an emerging opportunity nowadays.

What are Defence Sector Mutual Funds?

Defence Sector Mutual Funds are mutual funds that invest primarily in defence and related industries. These include companies involved in aerospace, weapon manufacturing, engineering, electronics and defence equipment. In simple terms, these are mutual funds investing in the defence sector that directly bet on companies whose business is related to defence.

These funds fall under the category of sectoral/thematic funds, which is recognized by SEBI (Securities and Exchange Board of India). This means that their investment is focused on a single sector, while diversified equity funds invest in many different industries. The main objective of these funds is to take advantage of the long-term opportunities provided by India’s growing defence needs and the Atmanirbhar Bharat initiative. It is important to note that since these are mutual funds in the defence sector, they also carry higher risk, and investors should always consider these funds from a long-term perspective.

Defence Sector Mutual Funds List 2026

Fund Name	Current Nav	AUM	6M Returns	1 year Return
Motilal Oswal Nifty India Defence Index Fund	₹ 10.25	₹3,703.3 Cr	27.23%	19.49%
HDFC Defence Fund	₹ 24.38	₹7,024.99 Cr	26.18%	11.67%
Aditya Birla Sun Life Nifty India Defence Index Fund	₹ 11.41	₹721.82 Cr	27.01%	18.97%
Groww Nifty India Defence ETF FoF Direct Growth	₹ 11.70	₹78.84 Cr	26.38%	16.95

(Data as on 15-10-2025)

1. Motilal Oswal Nifty India Defence Index Fund

This fund invests in leading companies in India’s defence sector. Its minimum SIP starts from ₹500 and the fund manager is Swapnil P Mayekar. The top holdings of this fund include Bharat Electronics Ltd. (20.6%), Hindustan Aeronautics Ltd. (20.46%), Solar Industries India Ltd. (11.54%), Bharat Forge Ltd. (11.50%), and Mazagon Dock Shipbuilders Ltd. (7.46%). Due to the strong growth of the defence industry and government support, this fund can be a good option for long-term investors.

2. HDFC Defence Fund

HDFC Defence Fund is managed by Priya Ranjan and it invests directly in defence and related capital goods companies. The fund’s key holdings includeBharat Electronics Ltd. (18.88%), Hindustan Aeronautics Ltd. (15.21%), Solar Industries India Ltd. (11.67%), Bharat Forge Ltd. (9.58%), and BEML Ltd. (8.83%). Apart from this, companies like Bharat Forge and Premier Explosives are also part of the portfolio. This fund is an ideal choice to capture direct growth of the defense sector.

3. Aditya Birla Sun Life Nifty India Defence Index Fund

This fund also focuses on defense sector companies and is managed by Priya Sridhar. The minimum SIP starts from ₹500. Bharat Electronics Ltd. (21.24%), Hindustan Aeronautics Ltd. (21.10%), Solar Industries India Ltd. (14.83%), Mazagon Dock Shipbuilders Ltd. (8.72%), and Cochin Shipyard Ltd. (6.01%). This fund covers key stocks in the defense industry and is a better option for investors looking for index-based options.

4. Groww Nifty India Defence ETF FoF Direct Growth

This fund is managed by Akash Chauhan and its SIP starts from just ₹500. This fund invests 100% in Groww Nifty India Defence ETF, i.e. it directly tracks the performance of the defense sector index. Investors who do not want to invest directly in ETFs can take advantage of the growth of the defense sector through this fund of funds (FoF). This is a new and simple option, especially for beginner investors.

Why Defence Sector Mutual Funds are Gaining Popularity

India’s Defence Investments at an all-time high : The Union Budget 2025–26 has allocated ₹6.81 lakh crore for the Defence sector, an increase of about 9.5% from last year and accounting for about 13.5% of the total budget. This huge investment has made defence sector mutual funds an attractive option.
Make in India + Export Expansion : India recorded an 18% growth in defence production in 2024–25, reaching ₹1.50 lakh crore. Also, defence exports reached ₹23,622 crore, a 12% year-on-year growth with the private sector contributing ₹15,233 crore. This provides a strong foundation for the “Make in India” and “mutual funds investing in defence sector” themes.
Geopolitical tensions and global demand : International conditions and security challenges have accelerated the pace of warfare technology and defence production. For example, manufacturers such as Solar Group are increasing production of 155 mm ammunition amid the Russia–Ukraine conflict.
Good performance of defense companies in the stock market : Hindustan Aeronautics Limited (HAL), Bharat Electronics Ltd (BEL), Bharat Forge and other defense companies have performed well in recent years, which is a positive sign for investors looking for the best defense mutual fund.

Advantages of Investing in Defence Sector Mutual Funds

The government’s Make in India initiative, growing defence exports, and cutting-edge technology innovations have made it attractive for investors in the long run. At such a time, investing in defence sector mutual funds can prove to be a wise move. These funds not only provide an opportunity to invest in companies that contribute to national security, but also strengthen investors’ portfolios.

Strong growth potential : India’s defence budget is constantly increasing and with it, new deals and projects are increasing in the industry. For example, companies like Hindustan Aeronautics, Bharat Electronics and Solar Industries are expanding rapidly. By investing in these funds, you can directly benefit from the growth of this sector.
Stable investment for the long term : The defence sector is not a short-term investment theme. This sector will grow in the long run, as there is continued government and private investment. Such funds provide investors with an opportunity for stable and long-term returns.
Diversification in portfolio : Through these funds, you can invest in both government (PSU) and private defense companies. This diversifies your investment and balances the risk.
Benefit from government policies and incentives : Increasing FDI limit by the government, promoting local manufacturing and giving policy incentives for the defense sector is continuously strengthening this sector. Investing in such an environment can prove to be beneficial in the long run.
Long term wealth creation : If investors stay patient for a long time, then these funds can give good capital appreciation and returns. Continuously increasing government and private investments strengthen the companies of this sector, giving long-term benefits to the investors.

Risks & Challenges Investors Should Know

Defence sector mutual funds are attractive, but it is important to understand the risks involved. If you want to invest in these funds, pay attention to the following five key aspects:

Risk of centralised investing : Defence funds often invest in just a few large companies, such as Hindustan Aeronautics and Bharat Electronics. If there is any instability in these companies, the entire fund can be affected. Therefore, it is important to understand that your money is concentrated on the entire sector, not individual industries.
Dependence on government policies : The defence industry is dependent on government policies and budgets. If the defence budget is reduced or new deals are delayed, the earnings of companies can be affected and your fund’s returns can also be low.
High valuation of stocks : Defence sector stocks have risen rapidly in the last few years. This means that their valuations (P/E or P/B) are high. In such a situation, future returns may be limited and prices may fall during market correction.
Global and geopolitical risks : The defense sector is affected by international events. Wars, agreements or international tensions can directly affect the orders and supply chain of companies. At such times, investors are likely to incur losses.
Investor advice : If you are a retail investor, invest only 5–10% of your portfolio in defense funds. Invest for the long term and be patient. This will balance the risk and increase the chances of getting better returns.

Read Also: Types of Mutual Funds in India

Conclusion

Defense sector mutual funds are a good option for those who want to earn good returns by investing for a long time. These funds invest primarily in large defense companies of India and strengthen the portfolio. Keep in mind, being a sector-focused investment, there are some risks and global events can have an impact.

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15	What is a Fixed Income Mutual Fund?
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Frequently Asked Questions (FAQs)

What are defence mutual funds?
These are funds that invest in India’s defence and related sector institutions.
Who should invest in defence mutual funds?
These funds are ideal for investors with a long-term investment horizon and a moderate risk appetite.
What is the minimum SIP to start with?
Most funds have a minimum SIP starting at ₹500.
Are these funds risky?
Yes, as these are focused on a single sector, they come with higher risk.
Can these funds give high returns?
These can give good returns in the long term, especially when the sector players are performing well.

November 13, 2025

What is Collateralized Debt Obligation (CDO)?

What if you have multiple products and you want to sell all these products, but individually selling all these products can be a bit slow. But what if you create a combo basket of all these products and sell them togetherly.

Surprisingly similar things happen in the financial world as well, let’s talk about banks that have a lot of different types of loans available, like home loans, car loans, and even credit card debt. Instead of holding onto them for years, banks bundle all these loans into one big package and this cumulative package is known as the Collateralized Debt Obligation (CDO). It’s simply a mix of different debt products crafted into a single product that can be sold to investors.

How Does a Collateralized Debt Obligation (CDO) Work?

The journey of creating a CDO is like a financial assembly line. It turns everyday loans into a complex investment product through a few key steps.

It all starts when a bank or a financial institution gathers a huge pile of loans. These can be anything from mortgages to business loans. This large pool of loans acts as the “collateral” that supports the CDO. In simple terms, it’s the assurance that money will keep coming in from the borrowers who originally took those loans.

Next, the bank sells this pile of loans to a brand-new, separate company. This new company is called a Special Purpose Entity (SPE), and this step is most important. By selling the loans, the bank gets them off in their own books. This means the risk that people might not repay their loans is now passed on from the bank to someone else.

The SPE now needs cash to pay the bank for all those loans. To get this money, it issues and sells bonds to investors and these bonds are the CDOs. The money from the investors goes back to the bank, which is now free to use that cash to give out even more loans.

And just like that, the system is up and running. The people who took out the original loans keep paying their monthly installments. This money now flows to the SPE, which then passes it along to the investors who bought the CDO bonds. This steady stream of payments is how the investors earn a return.

The Structure of a CDO

CDOs are complex due to their structure and it doesn’t act like one big investment block, instead it is divided into different layers which are called “tranches” – meaning slices in French.

Picture it like a multi-story building where the money from the loan payments flows from the top to the bottom.

Senior Tranche: This is the top most level and is the safest slice of the CDO, here investors who buy these tranches are the very first to get paid from it because it is very safe as the interest rates offered are very low. This slice usually gets a top ‘AAA’ credit rating and is popular with less risk taking investors.
Mezzanine Tranche: This is the middle floor and is a bit riskier than the senior tranche. Investors get paid once everyone on the top level has been paid in full. To make up for this extra risk, a higher interest or return is offered..
Equity Tranche: This is the ground level and is considered as the riskiest part. These investors are the absolute last in line to get paid and if people start defaulting on their loans and the money dries up, this tranche is the first to lose everything. But with great risk comes the potential for the greatest reward, so it offers the highest potential returns.

Types of Collateralized Debt Obligations

Collateralized Loan Obligations (CLOs): These are packed with business or corporate loans.
Collateralized Bond Obligations (CBOs): These are backed by a collection of corporate bonds.
Mortgage-Backed CDOs: These were the worst performing and most problematic CDOs during the 2008 crisis. They are filled with mortgage-backed securities (MBS), which are themselves pools of home loans.
Synthetic CDOs: These are the most mind-bending of all as they don’t actually hold any loans. Instead, they are made up of financial bets called credit default swaps (CDS), which work like insurance policies on loans. They let investors bet on whether loans will be repaid without ever owning them.

The Role of CDOs in the 2007-2008 Financial Crisis

In the early 2000s, investors all over the world were hungry for CDOs. To keep making more of them, banks needed a constant supply of new loans to stuff inside. This created a giant “demand engine” for mortgages, due to which lending standards were neglected and banks started handing these to people who have shaky credit histories as well and the main goal was simply to create more loans, package them into CDOs, and sell them off for a quick fee.

Also during this time we have noticed that credit rating agencies, like Moody’s and S&P gave many of these CDOs, even the ones filled with the riskiest subprime mortgages, their highest ‘AAA’ rating because the same banks that were creating the CDOs were also paying the agencies to rate them and the computer models used to predict risk were deeply flawed with assumptions that house prices would always go up, and that a wave of mortgage defaults in one part of the country which wouldn’t affect another.

When the US housing market finally started to wobble in 2007, the whole system fell apart, people with subprime mortgages began to default on their loans in huge numbers leading to slow funds accumulation in CDOs and all these losses completely wiped out the equity and mezzanine tranches. Even the “super-safe” AAA-rated senior tranches started to lose money. The value of these CDOs plummeted, causing devastating losses for banks and investors everywhere, setting off a chain reaction, freezing up credit markets and pushing the world into the worst financial crisis since the Great Depression.

The Evolution of CDOs

After the 2008 crisis, the world of finance knew things needed to be changed and Governments stepped in by introducing new rules to stop a disaster like that from ever happening again.

The most important act was the Dodd-Frank Act in which the idea was to mandate the sponsors of residential mortgage backed securities retain at least 5% of the credit risk associated with the mortgage they securitize and the idea is that if they have their own money on the line, they’ll be much more careful about making sure the loans inside are actually good quality.

The “CDO” brand name became so toxic after the crisis that it’s rarely used now. Instead, the market has shifted towards their cousin, the Collateralized Loan Obligation (CLO). CLOs are mostly backed by corporate loans, which are seen as more stable and easier to understand than the subprime mortgages of the past. The structures are also generally safer, with more built-in protection for investors.

Conclusion

Collateralized Debt Obligation is just a financial tool in the market, if used responsibly, it can be a good thing, helping to spread risk around the economy and freeing up banks money giving them a higher lending power and investors more choices.

Although after the 2008 crisis lesson, we have learnt what can happen if complexity is used to hide risk, and the chase for fees goes completely aside. Through CDOs we know that while financial innovation can be a force for good, it must be balanced with strong rules, clear transparency, and common sense.

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Frequently Asked Questions (FAQs)

Difference between a CDO and a regular bond?
A regular bond is a straightforward loan to a single entity, like a company or a government, on the other hand CDO is a security backed by a whole pool of different loans (like mortgages, car loans, etc.).
Can small investors buy CDO?
No,as CDOs are very complex products that are sold to big institutional investors like banks, insurance companies, and hedge funds.
Are CDOs and Mortgage-Backed Securities (MBS) similar?
They’re related, but not quite the same. An MBS is a product that is backed only by a pool of mortgages and CDO is generally a broader kind of package that can actually hold an MBS inside it.
Are CDOs legal after the 2008 crisis?
CDOs are still created and sold today with stricter rules and largely they’ve moved towards what are considered safer versions, like Collateralized Loan Obligations (CLOs).
Why were CDOs rated higher by the rating agency in 2008?
There was a major conflict of interest, as the banks creating the CDOs were the same ones paying the agencies to rate them and also the computer models used by the agencies were fundamentally flawed.

November 13, 2025

Fixed Income Arbitrage Explained: Strategies, Risks & Examples

Have you ever bought vegetables from a shop vendor besides your home and in the local wholesale mandi. You have always noticed the price difference between the vendors as all the shop vendors buy the vegetables from these mandis where they buy in bulk which is cheap and sell it at a high price. This small price difference is their profit.

This simple idea of profiting from price differences is the strategy that we can also witness in the financial world as well, where you get fixed interest rates just like a company’s bond. In a nutshell, we will learn about fixed income arbitrage. In this blog, we will explore and look at some common fixed income arbitrage strategies, and walk through a fixed income arbitrage example.

How Does Fixed Income Arbitrage Work?

Fixed income arbitrage is a strategy that exploits small, temporary price differences between similar fixed-income securities like bonds. Investors buy the cheaper bond and sell the more expensive one simultaneously, expecting the market to correct the mispricing. Profit comes from the price gap closing over time.

For this to work, the two bonds must be nearly identical, such as from similar issuers with matching maturity dates. This similarity reduces risk by ensuring the price difference is temporary, not due to fundamental value changes. The strategy relies on exploiting market inefficiencies before prices realign.

Liquidity is crucial, as the securities must be easy to trade quickly before the price gap disappears. This strategy is market-neutral, meaning profits come from price convergence, independent of overall market movements. Traders do not rely on market direction but focus solely on relative price changes.

Fixed Income Arbitrage Strategies

Generally this type of investment is mainly done by institutions like hedge funds, not individuals, because it requires a lot of money and powerful computers. Let’s look at some common strategies.

1. Convertible Bond Arbitrage

A convertible bond is a special bond which can be changed for company shares. If the bond’s price doesn’t quite match the stock’s price, traders see an opportunity. They might buy the ‘cheap’ bond and sell the company’s stock at the same time (called “shorting”). This is a classic fixed income arbitrage example where the trader profits from this temporary mismatch.

2. Yield Curve Arbitrage

In this type the interest rate on a 10-year government bond should have a sensible relationship with a 5-year bond. If a trader feels this relationship is out of order, let’s say the gap in interest rates is too big and they can bet that it will return to normal. They might sell the 10-year bond and buy the 5-year bond, waiting for that gap to close.

3. Swap-Spread Arbitrage

This is the most complicated one as it involves profiting from the difference between the interest rate on a government bond and this rate is used in another financial contract called an interest rate swap. It’s a highly technical trade used almost exclusively by large financial institutions.

Risks Associated with Fixed Income Arbitrage

Leverage Risk: As profits based on each trade are tiny, traders borrow huge sums of money (leverage) to make it worthwhile. But just as leverage increases profits, it can even increase your losses even more.
Convergence Risk: The whole strategy revolves around the closing price gap. But what if it doesn’t go as planned and there is a panic in the market, that small gap could become huge leading to big losses.
Execution Risk: If a trader isn’t quick enough to place both the buy and sell orders instantly, the opportunity is gone as these price gaps can vanish in a flash.
Model Risk: Traders rely on fancy computer models to spot these “mispriced” securities. But models are just pre designed models, sometimes they can be wrong, especially when something unexpected happens in the market.

Advantages and Disadvantages of Fixed Income Arbitrage

Advantages

Lower Market Risk: As investors are buying one thing and selling a similar one, they really don’t bet on the whole market going up or down. This offers some protection from big market swings.
Stable Returns: The aim is to make small, steady profits from the market’s little imperfections, which can lead to more consistent returns.
Works Well in Volatile Markets: When markets are volatile and prices fluctuate wildly, more pricing mistakes occur, creating extra opportunities for traders.

Disadvantages

Capital Intensive: The profits on each trade are wafer-thin and to make real money, you need to invest a massive amount of capital. This is why it is generally done by big institutions, limiting individual investors.
Complex Nature: This isn’t a simple buy-and-hold approach as it demands powerful computers, complex math, and a team of experts to pull it off.
The “Steamroller” Risk: The heavy use of leverage money means that one bad trade can lead to a catastrophic loss that wipes out all the small gains you made before.

Conclusion

Fixed income arbitrage looks fascinating from outside but is also complex in nature, also it is reserved for the financial giants. The mix of high complexity, huge capital needs, and the ever-present risk of the “steamroller” makes it a difficult investment for most of us. Understanding the concept is great to know about how the markets work.

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Frequently Asked Questions (FAQs)

Are all fixed-income arbitrage risk-free?
Absolutely not, they are generally termed as ‘low-risk’, but it doesn’t denote that they are completely risk free. Sometimes these strategies can fail if prices don’t move as predicted, and the use of borrowed money means a small loss can quickly become a huge one.
Why should individual investors not prefer this strategy?
It is due to massive amounts of money, the ability to borrow even more (leverage), and the super-fast trading technology to spot and act on these opportunities in seconds. Most individuals don’t have access to these.
What is the best time these strategies work, is it during rising or falling markets?
These are designed to be “market-neutral,” so rising and falling really don’t affect it, though it often finds more opportunities when the market is very volatile (when prices are jumping around a lot), as this creates more temporary pricing mistakes.
What do “long” and “short” positions mean?
“Long” is just buying something, hoping its price might go up and by going “short” it is the opposite as here you sell something you’ve borrowed, hoping its price will fall so you can buy it back cheaper, return it, and keep the difference.
Is it different from a government bond?
Buying and holding a bond is a simple investment where you collect interest over time. Fixed-income arbitrage is an active, high-stakes trading strategy which is about simultaneously buying and selling different things to profit from tiny, fleeting price gaps, not holding on for interest payments.

November 13, 2025

Best Silver Mutual Funds to invest in India

Silver has always had a special place in our lives, from family gifts to festive silver coins, but lately, it has been making headlines for a different reason. It is no longer just a glittery metal to own; it is gradually becoming a smart way to invest. With the rise of electric vehicles, solar panels, and new-age technologies, silver’s demand is increasing across the world.

The good news is that you do not need to buy physical silver to be part of this trend. Silver mutual funds let you invest in silver’s price movement, right from your phone or laptop.

In this blog, we will walk you through what silver mutual funds are, why they are becoming so popular, and the best ones to consider in India for 2026, along with a few simple points to look for before you invest.

What are Silver Mutual Funds?

Silver Mutual Funds are an easy way to invest in silver without buying or storing the metal for real. Instead of dealing with physical silver, these funds put your money into Silver Exchange Traded Funds (ETFs), which track the daily market price of silver in India.

So, when silver prices go up, the value of your investment rises too, and when they fall, your fund’s value may dip slightly. The big advantage is convenience, no worries about purity, safety, or storage. You get to benefit from silver’s price movements in a completely digital manner.

List of Best Silver Mutual Funds:

S. No	Funds	Minimum Investment	Expense Ratio (%)	Exit Load	6 Mth Ret (%)	1 Yr Ret (%)
1	Aditya Birla Sun Life Silver ETF FoF – Regular Plan	100	0.3	0.5	54.83	61.78
2	Axis Silver FoF – Regular Plan	5,000	0.16	0.25	51.1	59.7
3	HDFC Silver ETF FoF – Regular Plan	100	0.23	1	51.8	60.1
4	ICICI Prudential Silver ETF FoF	100	0.12	1	51.8	59.8
5	Kotak Silver ETF FoF – Regular Plan	100	0.14	0.5	52.2	60.6
6	Nippon India Silver ETF FoF – Regular Plan	100	0.27	1	52.53	60.5
7	SBI Silver ETF FoF – Regular Plan	5,000	0.3	1	53.2	61.5
8	Tata Silver ETF FoF – Regular Plan	5,000	0.2	0.5	49.5	58
9	UTI Silver ETF FoF – Regular Plan	100	0.15	1	51.8	59.6
10	Zerodha Silver ETF FOF Direct Growth	100	0.17	0	38.6	–

Read Also: Best Silver ETFs in India

Important Points to Consider before Investing

Before you decide to invest your money in silver mutual funds, you should quickly check these points mentioned below;

1. Prices Can Be Volatile

Silver prices move up and down quite a bit, they depend on global demand, industrial use, and even investor mood. There is no need to panic over short-term swings.

2. Returns Might Differ Slightly from Silver Prices

Since these funds invest in Silver ETFs, there can be a small difference between the actual price of silver and your fund’s return and this is called a tracking error.

3. Check the Expense Ratio

Every fund charges a small fee to manage your money. A lower expense ratio generally means more of your returns stay with you.

4. Think Long-Term

Silver is not about instant gains. Give your investment at least 3-5 years to even out the ups and downs.

5. Use It for Diversification

Silver works best as a small part of your portfolio, maybe 5 -10% to balance your exposure to equity and debt investments.

Read Also: How to Invest in Silver in India?

Conclusion

Silver mutual funds make it easy to add a bit of sparkle to your portfolio. As industries like electric vehicles, solar power, and electronics continue to grow, silver’s demand is only getting stronger day by day. However, silver prices can fluctuate depending on the global trends and supply. Think of it as a small but smart value addition. If you are looking for a simple, paperless way to benefit from silver’s long-term story, silver mutual funds are definitely worth a look in 2026.

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Frequently Asked Questions (FAQs)

Are silver mutual funds safe to invest in?
They are safe, but remember silver prices can fluctuate. It is best to stay invested for a few years and manage those price swings.
What is better, a Silver ETF or a Silver Mutual Fund?
If you have a Demat account and are comfortable with trading, a Silver ETF is a good option. On the other hand if you prefer investing through regular mutual fund platforms, a Silver Mutual Fund is easier.
How much do I need to start investing?
Not much, You can start with as little as ₹500 through a SIP.
Can silver replace gold in my portfolio?
Both asset classes have different roles. It is better to own a bit of both for a balance.
How long should I stay invested?
Try for at least 3 to 5 years. Silver can be unpredictable in the short term, but over time, it generally gives better stability and growth.

November 12, 2025

What is Oversubscription in IPOs?

A company wishing to go public, offers shares through an Initial Public Offering (IPO), giving the public a chance to become partial owners of the business. Sometimes, the company is hyped, and the demand for its shares exceeds the number of shares available. This is what is known as oversubscription. It is usually seen as a good sign; it shows that investors are excited and have confidence in the company. But it also means you might not get all the shares you applied for.

In this blog, we will break down why oversubscription happens, what it means for both investors and companies.

What is Oversubscription in IPOs

A scenario of Oversubscription happens when more people want to buy a company’s shares than the company is offering. To simplify, when demand exceeds supply. Suppose a company is offering 1 crore shares, but investors apply for 5 crore shares. That means the IPO is oversubscribed by 5 times, a sign that the company is popular. While oversubscription is usually a good sign, it also means you might not get all the shares you applied for. In such cases, the shares are usually distributed either proportionally or through a lottery system, so everyone gets a fair chance.

How Does Oversubscription Happen?

Here is how it usually comes about,

Limited Shares, High Interest – Companies only offer a set number of shares. If the company’s price is attractive, more investors apply than there are shares available.
Excess Hype & Advertisement – Media coverage, analyst recommendations, or just the general hype around a company can make investors rush in.
Strong Fundamentals – Companies with good growth prospects, stable financials, or a well-known brand draw more attention from investors.
Many Applications – Retail investors, high net worth individuals, and institutions all apply. When everyone’s combined demand is higher than the supply, oversubscription happens.
Fair Allocation – When there is oversubscription, shares are usually allotted either proportionally or through a lottery system, so everyone gets a fair chance.

Causes

Attractive Pricing – If the IPO is priced reasonably or even slightly cheaper than similar companies, investors see it as a great deal. Everyone likes to get their hands on companies which look undervalued.
Positive Market Mood – When the stock market is in an uptrend and people are feeling confident, they are more likely to take chances on new IPOs. A strong market often brings in more applications.
Familiar or Trusted Brands -If the company is already well-known or has products people use every day, investors feel more comfortable putting their money in. It becomes easier to trust a brand you already know.
Past IPO Success Stories – When recent IPOs have given good listing gains, it naturally builds excitement. Investors start thinking, “Maybe this one will perform just as well,” and rush to apply before it’s too late.

Read Also: What is the IPO Allotment Process?

Recent List of Oversubscribed IPO

S. No	Company	Oversubscription	Listing Date
1	Urban Company Ltd	103.6x	17 September 2025
2	LG Electronics India	54x	14 October 2025
3	Srigee DLM Ltd	107x	12 May 2025
4	VMS TMT Ltd	102x	24 September 2025
5	National Securities Depository Ltd (NSDL)	41x	6 August 2025

Impact of Oversubscribed IPO

1. For Investors

When an IPO gets oversubscribed, it simply means there are more buyers than shares offered by the company. So, there is a fair chance you will not get all the shares you applied for. The allotment is usually done through a lottery or on a pro-rata basis, which means you might get just a small portion of what you wanted, or sometimes, none at all.

2. For the Company

An oversubscribed IPO is a big confidence booster for the company. It signals that investors believe in its business and future growth. It also helps in creating a strong brand image and makes it easier for the company to raise funds later if needed.

3. For the Market

When several IPOs get oversubscribed around the same time, it usually points to positive market sentiment. It shows that investors are feeling optimistic and willing to take part in new opportunities.

Conclusion

If an IPO gets oversubscribed, it usually means investors are excited and believe in the company’s story. It is a strong sign of trust and enthusiasm in the market. But there is another side to it, too; not everyone will get all the shares they apply for, and hype does not always translate to profits.

As an investor, it is important to look past the hype. Check the company’s financials, understand what it does, and see if the pricing makes sense. Oversubscription can be because of advertisement and popularity, but smart investing comes from research, patience, and timing, not just hype.

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1	What are the Different Types of IPO in India?
2	What is the Book-Building Process in an IPO?
3	Why Does a Company Go Public & Launch IPO?
4	Performance Of IPOs Launched
5	OFS vs IPO: Key Differences and Benefits
6	Apply in IPO Through ASBA- IPO Application Method
7	What Is An IPO Mutual Fund? Should You Invest?
8	What is IPO Listing Time?
9	Strategies To Boost Your IPO Allotment Chances
10	From Private to Public: Decoding the IPO Journey
11	Why Invest in an IPO and its Benefits?
12	Top 10 Largest IPOs in India
13	Anchor Investors in IPOs – Meaning, Role & Benefits
14	What is Grey Market, and How Are IPO Shares Traded?

Frequently Asked Questions (FAQs)

What does it mean when an IPO is oversubscribed?
It simply means more people applied for shares than the company had to offer.
How are shares allotted when an IPO is oversubscribed?
In such cases, the company cannot give everyone what they asked for. So, shares are distributed either through a lottery system (for retail investors) or proportionally (for bigger investors like institutions and HNIs).
Does oversubscription always mean the stock will list higher?
Not necessarily. While high demand often hints at a strong listing, the actual performance depends on market conditions, valuations, and overall sentiment on the listing day.
Can I apply multiple times to increase my chances?
You can apply through different family members’ demat accounts if they have separate PAN numbers. But applying multiple times with the same PAN will get your application rejected.
Is an oversubscribed IPO always a good investment?
Not always. Sometimes hype plays a big role. It is better to focus on companies with strong fundamentals, business models, and realistic pricing.

November 12, 2025

Best Liquid ETFs in India 2026

We have all been there where you have extra cash sitting in your bank account. It is not a fortune, but enough that you know it should not just lie around earning 3% interest. You do not want to lock it into an FD either, because what if you need it next week? So, where do you park that money safely and make it work a little harder for you? This is where Liquid ETFs come in, the middle ground between “doing nothing” and “taking too much risk.”

In this blog, we will explore how Liquid ETFs work, why investors are increasingly using them for short-term parking, and which ones are currently the best options in India.

So, if you have ever wondered how to make your idle money a little more productive without losing sleep over it, this is for you.

What are Liquid ETFs?

Liquid ETFs are one of the easiest and most convenient ways to park your short-term money while earning a decent return.
These ETFs invest in ultra-short-term instruments such as Treasury Bills, Commercial Papers, and Certificates of Deposit, all of which are considered very safe. Since the investments mature within 91 days, the risk of losing money is extremely low.
You can buy or sell Liquid ETFs anytime during market hours through your demat and trading account. There is no lock-in period, and you get your money almost instantly when you sell.
Since Liquid ETFs track the Nifty 1D Rate Index, their returns are usually in line with short-term interest rates, which is generally better than what a savings account offers.
They also come with low expense ratios and no exit load, making them a good option for investors looking for safety, liquidity, and a little extra return on idle cash.

List of Liquid ETFs

S. No	Funds	Expense Ratio (%)	Launch Date	Net Assets (Cr)	1 Wk Ret (%)	1 Mth Ret (%)	3 Mth Ret (%)	6 Mth Ret (%)	1 Yr Ret (%)
1	ICICI Prudential BSE Liquid Rate ETF – Growth	0.25	2025-03-13	769	0.08	0.41	1.3	2.61	—
2	Mirae Asset Nifty 1D Rate Liquid ETF – Growth	0.15	2024-11-07	285	0.08	0.41	1.31	2.64	—
3	Nippon India Nifty 1D Rate Liquid ETF – Growth	0.49	2025-07-23	11,474	0.1	0.42	1.24	2.39	—
4	SBI NIFTY 1D Rate Liquid ETF – Growth	0.2	2025-08-08	29	0.08	0.4	0.37	–	—
5	Kotak Nifty 1D Rate Liquid ETF	0.08	2023-01-24	1,230	0.1	0.41	1.33	2.64	5.81
6	Zerodha Nifty 1D Rate Liquid ETF	0.27	2024-01-17	5,431	0.08	0.41	1.4	2.62	5.74
7	DSP BSE Liquid Rate ETF	0.3	2024-03-27	381	0.07	0.27	1.09	2.62	5.71
8	Bajaj Finserv Nifty 1D Rate Liquid ETF – Growth	0.19	2024-05-28	645	0.08	0.40	1.27	0.58	5.61
9	Groww Nifty 1D Rate Liquid ETF	0.29	2024-09-24	100	0.08	0.40	1.12	2.86	6.76
10	Shriram Nifty 1D Rate Liquid ETF	0.42	2024-07-05	39	0.08	0.40	1.25	2.52	5.56

Benefits of Investing in Liquid ETFs

If you are looking for a safe place to park your money for a short while, maybe between trades, or just until you decide on your next investment move, Liquid ETFs can be a great option. Some of the benefits of these ETFs are mentioned below.

1. Easy Access to Your Money

The biggest perk of Liquid ETFs lies in the name, liquid. You can buy or sell them anytime during market hours, just like any other stock. No waiting for redemption or settlement delays, your money is available whenever you need it.

2. Get Better Returns Than a Savings Account

Liquid ETFs usually offer returns that are a bit higher than what you would get from a savings account. They invest in short-term, low-risk instruments like Treasury Bills and Certificates of Deposit, so your money is put to work, even while it is “resting.”

3. Low Costs, No Extra Fees

These ETFs come with very low expense ratios and no entry or exit loads.

4. Transparent and Flexible

Because they are traded on the stock exchange, you can always see their price and portfolio in real time. You are in complete control, buy, sell, or hold whenever you like.

5. Safe and Steady Option

Liquid ETFs stick to high-quality, short-term debt instruments, which makes them one of the safest options out there. They do not swing wildly with the market, so they are perfect for conservative investors who want peace of mind.

Who Should Invest in Liquid ETFs?

Below is who can benefit the most from a liquid ETF:

1. Salaried Professionals and Young Investors

If you are someone who wants to park your salary surplus or emergency savings without locking it away, Liquid ETFs are a great choice. You get more than a savings account, and your money stays just as accessible.

2. Traders and Short-Term Investors

Traders often keep extra funds ready to grab market opportunities. Instead of letting it sit idle, they use Liquid ETFs to get small but steady returns between trades and move it back into equities whenever they find a good deal.

3. Corporations and Business Owners

Companies or business owners who need to manage temporary cash flows can use Liquid ETFs for short-term parking. They are safe, flexible, and can be redeemed quickly when funds are needed for operations.

5. Anyone Looking for a Better Alternative to Savings Accounts

If your money is just sitting in a low-interest savings account, you could shift a portion into Liquid ETFs. You will have easy access to it, but with better returns and no long-term commitment.

Risks Involved

Liquid ETFs are not completely risk-free. The risks are small, but you still should know what you are investing in.

1. Low Trading Volumes at Times

Even though they are called Liquid ETFs, some of them do not trade very actively on the stock exchange. This can lead to a small difference between the buy and sell price (called a price spread), especially if you are trying to trade larger amounts.

2. You will need a Demat Account

Unlike a liquid mutual fund, you cannot invest directly from your bank account. You will need a demat and trading account to buy or sell Liquid ETFs. It is not complex, but it adds an extra step if you are new to investing.

3. You Can Trade Only During Market Hours

Liquid ETFs can be sold only when the stock market is open. So if you need cash urgently at night or on a Sunday, you will have to wait until trading hours resume.

Read Also: List of Best Gold ETFs in India

Conclusion

Liquid ETFs are a simple way to make your idle money earn a little extra while keeping it completely safe and accessible. They bring together the best of two: the stability of a liquid mutual fund and the flexibility of stock trading. If you have cash in your savings account or you want a place to park your money for a short while before investing it elsewhere, Liquid ETFs are an ideal option, low-cost, transparent, and easy to buy or sell whenever you need.

However, remember to go for well-known options with good trading volumes so you do not face liquidity issues.

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2	What are ETFs? Are ETFs good for beginner investors?
3	ETF vs Index Fund: Key Differences You Must Know
4	How to Invest in ETFs in India – A Beginner’s Guide
5	What is Nifty BeES ETF? Features, Benefits & How to Invest?
6	What is Gold ETF? Meaning & How to Invest Guide
7	Types of ETFs in India: Find the Best for Your Investment
8	ETF vs Stock – Which One is the Better Investment Option?
9	Top Gold Mutual Funds in India
10	Digital Gold vs Gold ETF: Which is Better?
11	Small-Cap ETFs to Invest in India
12	Best ETFs in India to Invest
13	SBI Gold ETF vs HDFC Gold ETF: Where To Invest?
14	Gold BeES vs Gold ETF: Meaning, How It Works, Taxation
15	Sovereign Gold Bonds vs. Gold ETF: Which is a Better Investment?
16	List of Best Commodity ETFs in India

Frequently Asked Questions (FAQs)

How are they different from Liquid Mutual Funds?
Liquid ETFs trade on the stock exchange, while liquid mutual funds are bought directly from fund houses. ETFs are usually cheaper and have no exit loads.
Do I need a demat account to invest?
Yes, you will need a demat and trading account to buy or sell Liquid ETFs.
Are there any extra charges or exit loads?
No, Liquid ETFs do not have entry or exit loads; you just pay regular brokerage charges.
How are Liquid ETFs taxed?
They are taxed like debt funds, and any gains are added to your income and taxed according to your income tax slab.
Can I sell them anytime?
Yes, you can sell them anytime during market hours and get your money back within a day.

November 12, 2025

MTF Pledge vs Margin Pledge – Know the Differences

You’ve probably had that moment—spotting a stock that’s about to take off because of good news or strong fundamentals—but when you check your account, there’s just not enough money to grab the opportunity.

Or maybe you have a solid, long-term portfolio of stocks accumulated, and you wish that this portfolio could be used to make some quick moves in Futures & Options (F&O) without having to sell your holdings.

If you’ve been in either of these situations, you’ve probably stumbled upon two terms that brokers use, MTF Pledge and Margin Pledge. They sound almost the same but are complex in nature. They are as different as taking out a home loan to buy your first house versus taking a loan against a house you already own or Loan against property, think of your broker as a bank for a moment.

Let us break down the MTF Pledge meaning and the margin pledge meaning in simple words for a better understanding. This blog will help investors in knowing exactly what is MTF Pledge and what is Margin Pledge.

What is the MTF Pledge?

Margin Trading Facility (MTF) has a characteristic where investors “Buy Now, Pay Later” but only for stocks. It is a facility that lets you buy shares even if you only have a fraction of the money needed. You put down your portion (this is called the margin), and your broker lends you the rest of the amount.

For instance, if you want to buy shares worth Rs.1,00,000, your broker might ask you to pay just Rs.25,000 and the remaining amount of Rs.75,000 is funded. But the stocks that are bought are kept as security with the broker similar to the case of Home Loan where the new house is held by the bank.

This mandatory promise, or “pledge,” is what we call the MTF Pledge. It’s simply a way to secure the loan. It’s important to remember that pledging these shares doesn’t give investors trading power, rather it’s purely a security measure.

How Does MTF Work?

Select ‘MTF’ Option: While you are ready to buy a stock, you need to select options like ‘Delivery’ or ‘Intraday’ whereas also look for another option called ‘MTF’, ‘e-Margin’, or ‘Pay Later’ and select it.
Order Placement: Once you are done with placing your buy order, the brokers platform will take your margin amount from your account, and the broker will add their funds to complete the purchase.
Pledge the Shares: You might get a SMS or email with a link from the depository (CDSL or NSDL) and you had to click it, log in, and approve the pledge with an OTP before 9 PM. But these days this process has been automated by most of the brokers without requiring any OTP or link approvals.

You need to keep a note that since it’s a loan, you’ll pay a small daily interest on the amount the broker funded. So, it is best suited for trades that you plan to hold for a few weeks or months, but maybe not for years.

Use our Margin Trading Facility Calculator

What is the Margin Pledge

Margin pledge works differently as this is for traders who already have a portfolio with stocks, ETFs, or mutual funds and want to put that portfolio to work without selling a single thing.

Here, investors can “pledge” their existing investments to their broker as a guarantee. In return, brokers give you a special trading limit known as collateral margin. You can now use this collateral margin for other trading activities, like for intraday or in the Futures & Options (F&O) market. Here all the shares have your ownership and you still enjoy the benefits of getting dividends, you’ve just unlocked the hidden power of your portfolio.

How does Margin Pledge Work?

Go to Your Holdings and Pledge: You simply log into your broker’s platform (like Zerodha’s Console), head over to your portfolio, and you’ll see an option to “Pledge” your shares. You pick the stocks and the quantity you want to use.
Understanding the “Haircut”: The broker is cautious as the share price might go up or down, so they don’t give a trading limit equivalent to your portfolio instead they apply a small safety discount, called a haircut, to protect themselves. Let’s say if you pledge shares worth Rs.1,00,000 and the stock has a 20% haircut, your broker will give you a collateral margin of Rs.80,000.
Start Trading: This new margin of Rs.80,000 will show up in your account, ready to be used for your next big trade in F&O or for your intraday strategies.

MTF Pledge vs. Margin Pledge

Feature	MTF Pledge	Margin Pledge
Requirement	To buy specific stocks by borrowing money from your broker.	To get a trading limit by using your existing portfolio as a guarantee.
Optional	No, It’s mandatory for every single MTF trade, as per SEBI rules.	Yes, it’s completely voluntary, done only when you need the extra margin.
Pledging	The new shares are pledged	The existing shares and other securities you already own
Funds	You get a direct loan from the broker to complete a purchase.	You get a trading limit (collateral margin) against the value of your assets.
Interest	Yes, you pay daily interest on the loaned amount.	No interest charged on the margin itself. However, there’s a 50% cash rule for F&O trades that you need to follow to avoid interest charges
Usage	Only to buy and hold those specific shares you purchased with MTF.	Can be used for intraday trading, futures trading, and for selling options.
Risks	If the price of that one stock you bought falls sharply, you could get a margin call.	A margin call can come if your whole portfolio’s value drops OR if your F&O trade goes against you.

Conclusion

One should consider MTF Pledge when they have a strong gut feeling or solid research telling them that a specific stock is set to rise in the short-to-medium term and they want to go big on that single idea by leveraging your broker’s funds. On the other hand Margin Pledge is suitable for fast-paced investors of F&O or intraday. Here the goal is not just to buy one particular stock, but to have a flexible and ready source of capital to support all your trading activities. It’s the ultimate tool for making your portfolio work harder for you.

Leverage is a powerful tool, it can amplify your gains, but it can also magnify your losses. Always take a moment to understand the costs and risks before you jump in.

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3	Lowest MTF Interest Rate Brokers in India
4	What is Intraday Margin Trading?
5	What is Operating Profit Margin?
6	What is Stock Margin?
8	What is Margin Funding?
9	What Is Margin Trading?
10	What is Pay Later (MTF) & Steps to Avail Pay Later?
11	What is Pledging of Shares?

Frequently Asked Questions (FAQs)

Can shares be sold even when they are pledged?
Absolutely, for a Margin Pledge, most modern brokers let you sell the pledged shares directly and the money from the sale is simply used to cover the margin you were using. MTF Pledge, selling the shares means the loan is being closed, here the broker will take back their loan amount plus any interest, and the rest of the money (profit or loss) is all yours.
What happens if the MTF pledge is not done in time?
Although this system has been automated by most of the brokers, if your broker still uses the old manual OTP system and you miss the deadline (usually 9 PM), your trade might be treated as a normal delivery order, meaning you will have to pay the full amount of the shares.
Do Investors have to pay interest on a Margin Pledge?
No, investors don’t have to pay any interest for getting the collateral margin. However, there’s a rule for F&O trades you hold overnight, i.e. SEBI says at least 50% of investors’ margin must be in cash. If you use more of your collateral margin and fall short on the cash part, your broker will charge interest on that shortfall.
Can MTF be used in Futures & Options (F&O) trading?
No, MTF is designed specifically for buying equity shares for delivery and cannot be used for trading in F&O, currency, or commodities.
Why do brokers apply a “haircut”?
A haircut is just a safety buffer for the broker as stock prices can be volatile. By applying a haircut (a small percentage reduction), the broker ensures that even if the value of your pledged shares drops, they are still protected.

November 11, 2025

Physical Settlement in Futures and Options

Think of a derivative contract as a promise, some promises are settled with cash, where only the profit or loss are exchanged. But others require you to exchange the actual item. In the stock market, this is called physical settlement.

If you hold certain stock contracts until their expiry, you must either buy or sell the actual shares. This can be a huge surprise if you’re not ready, let’s get straight into All About physical delivery in Futures and Options. This blog gives you the essential knowledge about physical delivery in Futures and Options to help you trade smarter.

What is Physical Settlement?

Physical settlement means that when a stock derivative contract expires, you don’t just settle the profit or loss in cash. Instead, the actual shares are transferred between the buyer and seller.

If you have to buy, you must pay the full value of the stock and get the shares in your demat account, this is called taking delivery.
If you have to sell, you must have the shares in your demat account to give away, this is called giving delivery.

This rule only applies to derivatives on individual stocks. Index contracts like the Nifty 50 are always settled in cash, since you can’t deliver an index.

SEBI introduced this rule to make the markets safer and fairer. The main goals were to:

Reduce risks: Knowing you might have to buy shares worth lakhs makes you trade more carefully.
Stop price manipulation: It’s much harder to manipulate prices when you have to actually arrange for shares or full payment.
Align with global standards: This brings the Indian market in line with major international markets.

Positions Marked for Physical Settlement?

If you hold any of these positions until the market closes on expiry day, you are on the hook for physical settlement.

For Futures Contracts

Any open stock futures position at expiry will be physically settled.

A Long (Buy) Future means you must take delivery (buy the shares).
A Short (Sell) Future means you must give delivery (sell the shares).

For Options Contracts

For stock options, settlement only happens if your option is In-the-Money (ITM) when it expires. If it’s Out-of-the-Money (OTM), it just expires worthless with no further obligation.

The exchange automatically assumes you want to exercise your ITM option, so you must act if you want to avoid it.

Obligations

This table makes it clear what you have to do.

Contract Position	Your Obligation at Expiry	Simple Meaning
Long Stock Futures	Take Delivery	You must buy the shares.
Short Stock Futures	Give Delivery	You must sell the shares.
Long ITM Call Option	Take Delivery	You must buy the shares.
Short ITM Call Option	Give Delivery	You must sell the shares.
Long ITM Put Option	Give Delivery	You must sell the shares.
Short ITM Put Option	Take Delivery	You must buy the shares.

How is it calculated?

The final transaction value is not based on your trade price. It’s calculated using a specific price on expiry day.

For Futures: The settlement happens at the Final Settlement Price (FSP), which is the average price of the stock in the last 30 minutes of trading on expiry day. Example: Let’s say you have 1 lot of ABC Ltd. futures (lot size 500 shares). On expiry day, the FSP of ABC Ltd. is calculated to be Rs.1,200. Your obligation is to pay the full contract value, which is 500 × Rs1,200 = Rs 6,00,000, to take delivery of the 500 shares.
For Options: The settlement happens at the Strike Price of your option contract. Example: Let’s say you have 1 lot of an ABC Ltd. call option with a strike price of Rs.1,150. The stock closes at Rs.1,200 on expiry, so your option is ITM. Your obligation is to pay the value calculated using the strike price, which is 500 × Rs 1,150 = Rs 5,75,000, to take delivery of the 500 shares.

This is a crucial point. Your F&O profit might be small, but your settlement obligation could be for lakhs of rupees. Don’t confuse the two.

Contract Type	Settlement Value Is Based On
Stock Futures	Final Settlement Price (FSP) of the stock
Stock Options	Strike Price of the option contract

Settlement Timeline and Deadlines

The physical settlement process starts at the end or during the week of expiry.

The Final Week: In the last four days before expiry, exchanges start increasing the margin required for long ITM options. This is a signal to either close your position or arrange for funds.
Expiry Day: This is your last chance to act, as most brokers have a cut-off time (often around noon) to square off positions. If you don’t act, and don’t have the required funds or shares, your broker will close the position for you to manage their risk.
After Expiry (T+1 Day): The actual shares and funds are exchanged. Shares are credited or debited from your demat account.

Always check with your broker for their specific deadlines, as they can vary from broker to broker.

The Margin Squeeze

To enter an F&O trade, you pay a small margin. But for physical settlement, you need 100% of the contract value, either in cash to buy the shares, or the actual shares in your demat account to sell them.

To manage risk, exchanges force you to face this obligation early. They do this by gradually increasing the margin requirement on long ITM options in the last few days before expiry. This “staggered” margin increase makes traders exit, who can’t afford the full settlement, preventing a wave of defaults on the final day. If you can’t meet these increasing margin calls, your broker will likely close your position.

Conclusion

Physical settlement is a fundamental part of the market that you must respect. Being unprepared can be very costly.

Smart investors shall be aware and shall always know your open stock F&O positions as expiry week begins. Understanding if you need to buy or sell shares if you hold your position, means knowing your obligations and also keeping an eye on margin requirements, as they will shoot up in the final week. And finally act in time if you don’t want to take or give delivery, square off your position before your broker’s cut-off time.

By understanding these simple rules, you can navigate expiry week confidently and avoid any nasty surprises.

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5	What is Intraday Trading?

Frequently Asked Questions (FAQs)

How can investors avoid physical settlement?
The easiest way is to close (square off) your open stock F&O position before it expires and before your broker’s cut-off time. For futures, you can also roll over your position to the next month.
What happens if investors have to sell shares that they don’t own?
This is a “short delivery.” The exchange will buy the shares for you in an auction, and you have to pay the auction price plus a penalty, which is often very expensive.
What happens if I have to buy shares but don’t have enough money?
Your account will go into a negative balance, and your broker will charge you interest. The broker can also sell the shares delivered to you to recover the amount. You will be liable for any loss and charges.
What are the charges for physical settlement different?
Yes. Brokerage is typically higher (e.g., 0.25% of the settled value). Also, the Securities Transaction Tax (STT) is much higher, at the rate applicable for equity delivery (0.1% of contract value).
Does this apply to Nifty and Bank Nifty contracts?
No. Physical settlement is only for stock derivatives. All index F&O contracts are settled in cash.

November 11, 2025

What is Convertible Debentures?

When a company needs money to grow, it usually has two main options, either they take a loan (which is called debt) or sell a small part of its ownership (which is called equity or shares). But what if there was an investment that could be both.

Yes you’ve heard it right Convertible debentures are one such financial tool that creates a mix of both debt and equity. Convertible Debentures first starts as a loan to the company, but it holds a secret power for investors to transform loan into ownership. This unique feature makes Convertible Debentures one of the most interesting financial instruments in the financial market.

What is Convertible Debenture?

Debentures are a formal IOU from a company to the investor. When you invest in debentures, you’re lending the company money. In return, they promise to pay you regular interest and give your original money back after a set time period. But you should know this, debentures are usually unsecured meaning it is based purely on companies reputation and ability to make money, which adds a bit of risk.

Convertible Debentures gives investors the power to switch from being a lender to a part-owner or a shareholder. Investors can choose if they want to convert or just get their initial investment back when the loan period ends. This option is what makes a debenture so much more attractive, balancing risk with the potential for a much bigger reward.

Loan: When you invest you get a fixed interest payment, it acts just like a fixed deposit. If the company’s stock does not perform well, you can just hold the debenture and get your principal investment back at the end, protecting your initial investment.
Ownership: If the company’s stock performs well and its stock price starts to go up, you can convert your debentures into shares and you can earn in the company’s growth which can be much more than just the interest.

Why are convertible debentures offered?

Companies also have multiple reasons to issue convertible debentures.

Lower Interest Payments: As the company offers an attractive option to convert it from debentures to shares, companies can get away with paying a lower interest rate compared to a normal loan hence saving money.
Putting Off Dilution: When a company issues new shares, the ownership of existing shareholders gets smaller, or “diluted.” With convertibles, this dilution is pushed into the future and might not happen at all if investors don’t convert.
Tax Savings: The interest paid by the company falls as debt, accounted as business expense, which reduces their taxable profit. This makes raising money with debentures more tax-efficient than paying dividends to shareholders.

When a company issues convertible debentures, it also sends a strong, positive signal among the investors as it portrays they are confident their stock price will rise, making it a great deal for everyone.

Types of Convertible Debentures

Fully Convertible Debentures (FCDs): With these, investors’ entire loan should be converted into shares but you don’t get any cash back. This is common for new, high-growing companies that want their lenders to become long-term partners.
Partially Convertible Debentures (PCDs): This acts as a mix for the investors where a part of your debenture converts to shares, and the rest remains as loan which gets paid back to you in cash. This is often used by established companies.
Optionally Convertible Debentures (OCDs): Here the power is in the hands of investors, you can choose to convert to shares or just take your initial investment back at the end. This is the most flexible type for investors.
Compulsorily Convertible Debentures (CCDs): It can be understood by its name as in this conversion is mandatory. There is no option, debentures must be turned into shares at the maturity date. This is for investors who are ready to take on the full risk of the stock’s future.

Fully vs. Partially Convertible Debentures

Parameter	Fully Convertible (FCD)	Partially Convertible (PCD)
What Converts?	The entire amount becomes shares.	A part becomes shares, the rest remains a loan.
Who Issues It?	Usually newer companies with high growth potential.	Usually established companies with a track record.
What happens at the end?	You become a full shareholder.	You become a shareholder and get some money back.
Risk Level	Higher risk, higher potential reward.	Balanced risk, as part of your money is safe as a loan.

Key Features of Convertible Debentures

When you invest, there’s always a rulebook. Here are the key terms to look for:

Conversion Price: This is the set price per share for when you convert. If the conversion price is ₹100 but the stock is trading at ₹150, converting is a profitable move.
Conversion Ratio: This tells you how many shares you get for each debenture unit. A 10:1 ratio means you get 10 shares for one debenture unit.
Coupon Rate: This is the annual interest you earn as long as it’s a loan. It’s usually lower than a normal debenture because investors enjoy the right to convert.
Maturity Date: This is the end date of the loan. If you have an OCD and don’t convert, the company must pay you back your principal on this date.

Advantages	Disadvantages
You get regular interest payments, giving you a fixed income.	The interest is less than what a normal bond would pay.
You can profit if the company’s stock price goes up.	The company could fail and not be able to pay you back.
If the stock falls, you can just take your money back (with OCDs).	If you convert and the stock price then drops, you could lose money.
If the company goes bankrupt, you get paid before stockholders.	It’s not a simple product, you need to pay attention to make the right choice.

Conclusion

Convertible debentures are not for everyone in the market. They do not act as FD in terms of safety and not even risky as buying shares from the financial markets. They give investors a middle ground where it gives both safety of debt as well as growth potential of equities owned.

Investors who have a moderate appetite for risk can invest in the convertible debentures. If you believe in a company’s long-term growth story but want some protection in case things don’t go as planned, a convertible debenture could be a very interesting tool to have in your investment portfolio.

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6	Secured and Unsecured Bonds: Understand the Difference
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9	Tax-Free Bonds: Their Features, Benefits, and How to Invest
10	What are Bond Yields?
11	Stocks vs Bonds: Difference Between Bonds and Stocks

Frequently Asked Questions (FAQs)

Are convertible debentures advantageous for new investors?
Yes! Convertible debentures give you the best of both worlds. You get regular, fixed interest payments like a normal bond, which provides steady income. At the same time, you have the option to convert your debentures into company shares, giving you a chance to benefit if the stock price goes up.
What are the main risks attached to convertible debentures?
There are two main risks:Default risk: Most convertible debentures are unsecured, so if the company runs into trouble, it might not be able to return your money.Conversion risk: If you convert your debentures into shares and the stock price drops, you could lose money on your investment.
How can I make money from a convertible debenture?
There are two ways to earn:Interest payments: You get periodic coupon payments as long as you hold the debenture.Conversion into shares: If the company’s stock does well, you can convert your debentures into shares at a fixed price (usually lower than the market price) and sell them for a profit.
What happens if the invested company goes bankrupt?
If the company goes bankrupt, debenture holders are paid before shareholders. This means the company must pay back its debenture holders from any remaining assets before giving anything to shareholders.
Can debentures be converted into shares forcefully by the company?
It depends:Optionally Convertible Debentures (OCDs): The choice is yours—you decide if and when to convert.Compulsorily Convertible Debentures (CCDs): Conversion is mandatory at maturity, so you don’t get to stay a lender.

November 10, 2025

What Is Loan-to-Value (LTV) Ratio in Margin Trading?

Have you ever wondered how much borrowing is safe if you trade by pledging your holdings? This question becomes the most important in margin trading. In this trading, investors borrow money from the broker by pledging their stocks and take bigger positions with the same money. But how much should this borrowing be? This is where the Loan-to-Value (LTV) Ratio comes in which determines how much you can borrow against your pledged assets. In this blog, we will understand in detail what the loan to value ratio is, how it works, and why it is very important for a trader to understand it.

What is the Loan-to-Value (LTV) Ratio

Loan-to-Value Ratio, or LTV for short, is a financial indicator that shows how much of your loan you have taken compared to the total value of a property. This ratio measures how much of your loan amount is the value of your pledged assets (such as a house, stocks or bonds). It is usually expressed as a percentage (%).

LTV is most commonly used in home loans, gold loans, and especially in investment options like margin trading. When you take a loan from a broker by pledging your securities (such as shares), the LTV ratio determines the extent of the loan you will get.

For example, if you pledged shares worth ₹1,00,000 and got a loan of ₹70,000 on it, then your LTV ratio will be 70%. That is, you have borrowed up to 70% of the total value of your property.

What is the formula for LTV?

Loan to Value Ratio Formula:

LTV Ratio = (Amount borrowed ÷ Current value of security pledged) × 100

Example : Suppose you have pledged shares worth ₹1,00,000 and you are given a margin loan of ₹70,000 by the broker Then

LTV = (70,000 ÷ 1,00,000) × 100 = 70%

What is the role of LTV in margin trading?

LTV i.e. Loan-to-Value Ratio plays a very important role in margin trading. When a trader pledges shares or mutual fund units in his demat account with a broker, the broker lends him a certain amount based on the value of these assets; this is called margin loan.

But the question is how much money will be received against the value of that collateral? The answer to this is LTV.

How does the broker decide LTV?

The percentage of LTV depends on which securities you are pledging and how stable and reliable their market value is.

If you have pledged stocks of blue-chip companies (like TCS, Infosys, HDFC Bank), then these companies are considered less volatile. In such a situation, the broker can give you LTV ranging from 70% to 80%.
On the other hand, if you pledge penny stocks, mid-cap or stocks of more volatile companies, then the LTV reduces to 50% to 60%, because the risk of decline is higher in such stocks.

SEBI rules and effect of haircut : According to SEBI, every broker is required to apply a haircut on pledged securities. This haircut is a safety cut in the value of the asset which reduces the risk of the broker in case of a sudden market crash or decline.

For example : If you have pledged shares worth ₹1,00,000 and SEBI has fixed a 20% haircut on it, then the broker will consider the effective value of that collateral as ₹80,000. Now if LTV of 75% is applied on it, then you will get a usable margin of about ₹60,000.

Why is Loan-to-Value Ratio so important in trading?

Loan-to-Value Ratio (LTV) is one of the most important metrics in margin trading, as it directly reflects the safety of your position and your creditworthiness to the broker. A high LTV indicates that you have taken a lot more loan than the value of your assets, which means more risk.

1. Increasing LTV poses a risk of margin call

In margin trading, when the value of your portfolio decreases and it affects the LTV, the broker can trigger a margin call on your account. This means that you will have to immediately deposit additional margin to support your position or reduce the loan by selling parts. If you do not respond in time, the broker can automatically sell your holdings, thereby ensuring a loss.

2. It also affects interest rates

LTV is not only an indicator of risk, but it also affects the interest rate at which you will get a loan from the broker. A lower LTV usually results in a lower interest rate. But as the LTV increases, the broker’s risk also increases and the interest rate can be higher accordingly. This is why trading on a higher LTV can prove to be expensive.

3. Higher LTV means more leverage and more risk

When you pledge your stocks and trade with a loan from the broker, you are using leverage. LTV indicates the level of that leverage. For example, if your LTV is 75%, it means you have traded with only 25% of your capital and the remaining 75% is borrowed. This strategy can certainly increase profits, but the losses can also be huge if there is a slight fall in the market.

4. Understanding LTV is essential for successful trading

Often new investors focus only on how much credit they can get from the broker, and end up using the entire limit. But experienced and professional traders know that it is not only wise to reach the LTV limit, but it is also important to keep that ratio stable and safe. A controlled and prudent LTV is the key to success and longevity in trading.

Factors That Influence LTV in Margin Accounts

There are many important factors behind deciding LTV (Loan-to-Value) in Margin Trading. All these factors together decide how much margin an investor will get on pledged shares.

Volatility of the stock : If a stock is more volatile, that is, its prices fluctuate rapidly, then the LTV available on it may be less. Brokers do not want to take much risk in this situation.
SEBI Classification (Group 1 vs Group 2) : SEBI has divided the shares into Group 1 and Group 2. The shares coming in Group 1 (such as blue-chip stocks) are considered more secure and there is a possibility of getting higher LTV (60–75%) on them. On the other hand, more haircuts are given on the shares included in Group 2.
Liquidity of the stock : Highly liquid stocks, that is, those which can be bought and sold easily, get better LTV. The broker usually gives less LTV on pledging shares with low liquidity.
Market conditions and broker’s risk policy : If there is a sharp decline or uncertainty in the market, the broker may reduce the LTV as per its internal risk norms. Sometimes brokers apply stricter margins as per their risk appetite.
Regulatory Updates and Circuit Breakers : If SEBI implements new rules or circuit breakers are imposed on a stock, then the LTV may also change. The broker can immediately increase the haircut or remove the MTF eligibility.

Read Also: What is Margin Money?

Common Mistakes Investors Make Around LTV

Using excessive leverage : Many investors use all the funds they can get through LTV without thinking that the market may crash. High leverage can turn a small loss into a big one.
Ignoring margin calls : If the value of pledged shares falls, the broker sends a margin call. Ignoring this can lead to your account being frozen or shares being confiscated.
Pledging high-risk stocks : Stocks that have a lot of volatility (such as penny or speculative stocks) have higher haircuts and lower margins. This can lead to frequent margin shortfalls.
Underestimating interest cost : Funds received through LTV attract interest. If this cost is not understood, the profit that is shown may actually turn out to be a loss.
Not having a Risk Management Plan : While doing margin trading, it is important to have a proper stop-loss, diversification and capital allocation strategy. Trades done without planning can be harmful.

How to Manage and Control Your LTV Ratio

Monitor the portfolio regularly : Keep a constant eye on your pledged shares and their market value. If the price of any stock falls, it will directly affect your LTV. Check portfolio health at least once a week.
Diversification is important : Pledging only one type of stock or one sector can increase the risk. Pledging shares of different sectors and fundamentally strong companies reduces the haircut and keeps the LTV stable.
Keep an emergency margin buffer : Never use your entire eligible margin. Keep a buffer of at least 10–15% so that you do not have to face margin shortfall in a sudden market fall.
Use calculators and tools : Nowadays many platforms provide advanced LTV calculators and portfolio analytics tools. These tools can tell you in real-time what your current LTV is and how much margin is left.
Use alerts and automation : Most brokers now offer tools that send you alerts via SMS or app notifications when your LTV is approaching the limit. Also, some platforms have an auto-margin top-up facility so that the system automatically maintains the buffer.

Read Also: What is Pledging of Shares?

Conclusion

If you do margin trading, understanding the Loan-to-Value (LTV) ratio is as important as trading. This ratio determines how much funds you can borrow against your pledged securities and how far your risk is spread. If you trade without understanding it, you may face a margin call or forced sell-off in a sudden market fall. Therefore, a smart trader is one who keeps the LTV in balance, tracks it from time to time and takes action when needed. After all, proper planning and control are the companions of good trading.

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Frequently Asked Questions (FAQs)

What is the full form of LTV in margin trading?
LTV means “Loan-to-Value”, which tells how much loan or margin you can take against the value of pledged shares.
What happens if my LTV ratio increases too much?
If the LTV becomes high, the broker may send a margin call or sell your shares.
Is a lower LTV always better?
Yes, lower LTV is safer as it carries less risk if the market falls.
How can I reduce my LTV ratio?
You can reduce your LTV by adding cash or more shares, or by closing some positions.
Does every broker offer the same LTV limit?
No, different brokers follow different haircuts and LTV limits, depending on the category of stock.

November 10, 2025

Blog

What are Defence Sector Mutual Funds?

Defence Sector Mutual Funds List 2026

1. Motilal Oswal Nifty India Defence Index Fund

2. HDFC Defence Fund

3. Aditya Birla Sun Life Nifty India Defence Index Fund

4. Groww Nifty India Defence ETF FoF Direct Growth

Why Defence Sector Mutual Funds are Gaining Popularity

Advantages of Investing in Defence Sector Mutual Funds

Risks & Challenges Investors Should Know

Conclusion

Frequently Asked Questions (FAQs)

What are defence mutual funds?

Who should invest in defence mutual funds?

What is the minimum SIP to start with?

Are these funds risky?

Can these funds give high returns?

How Does a Collateralized Debt Obligation (CDO) Work?

The Structure of a CDO

Types of Collateralized Debt Obligations

The Role of CDOs in the 2007-2008 Financial Crisis

The Evolution of CDOs

Conclusion

Frequently Asked Questions (FAQs)

Difference between a CDO and a regular bond?

Can small investors buy CDO?

Are CDOs and Mortgage-Backed Securities (MBS) similar?

Are CDOs legal after the 2008 crisis?

Why were CDOs rated higher by the rating agency in 2008?

How Does Fixed Income Arbitrage Work?

Fixed Income Arbitrage Strategies

1. Convertible Bond Arbitrage

2. Yield Curve Arbitrage

3. Swap-Spread Arbitrage

Risks Associated with Fixed Income Arbitrage

Advantages and Disadvantages of Fixed Income Arbitrage

Advantages

Disadvantages

Conclusion

Frequently Asked Questions (FAQs)

Are all fixed-income arbitrage risk-free?

Why should individual investors not prefer this strategy?

What is the best time these strategies work, is it during rising or falling markets?

What do “long” and “short” positions mean?

Is it different from a government bond?

What are Silver Mutual Funds?

Important Points to Consider before Investing

1. Prices Can Be Volatile

2. Returns Might Differ Slightly from Silver Prices

3. Check the Expense Ratio

4. Think Long-Term

5. Use It for Diversification

Conclusion

Frequently Asked Questions (FAQs)

Are silver mutual funds safe to invest in?

What is better, a Silver ETF or a Silver Mutual Fund?

How much do I need to start investing?

Can silver replace gold in my portfolio?

How long should I stay invested?

What is Oversubscription in IPOs

How Does Oversubscription Happen?

Causes

Recent List of Oversubscribed IPO

Impact of Oversubscribed IPO

1. For Investors

2. For the Company

3. For the Market

Conclusion

Frequently Asked Questions (FAQs)

What does it mean when an IPO is oversubscribed?

How are shares allotted when an IPO is oversubscribed?

Does oversubscription always mean the stock will list higher?

Can I apply multiple times to increase my chances?

Is an oversubscribed IPO always a good investment?

What are Liquid ETFs?

List of Liquid ETFs

Benefits of Investing in Liquid ETFs

1. Easy Access to Your Money

2. Get Better Returns Than a Savings Account

3. Low Costs, No Extra Fees