I’ve been using Upstox & Fyers demat accounts since 2016 & 2020. At the time of account opening, I had submitted the DDPI (Demat Debit and Pledge Instruction) / Power of Attorney (POA) as required.
After using these platforms for a long time, I’ve noticed some pros and cons of DDPI. Here’s my take:
The DDPI (Demat Debit Pledge Instruction) is a process used in the Indian stock market, allowing investors to pledge their demat securities as collateral to secure loans. This is also used in MTF, Buyback etc.
What is DDPI here is the full information about the same.
Here’s a look at the pros and cons of using DDPI for Demat Debit Pledge:
Pros:
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- Loan Against Securities: By pledging your demat holdings Securities such as share, bonds, Mutual fund, NCDs etc, you can take loans or margins from your brokers, which can be used for trading or personal needs without selling your holding.
- No Need to sell Your Holding Instead of selling stocks or mutual funds to raise funds, You can pledge them and retain ownership, benefiting from potential future price appreciation while gaining access to funds.
- Sell Holding without OTP – if you want to sell your holdings you can sell them without to go CDSL website and sell your holdings instantly.
- Helps in Margin Trading Facilities – By enabled DDPI you can take the benefits of upto 4x leverage on your fund in delivery for the longer time period holding.
- Lower Interest Rates: Since the loan is secured by demat holdings, financial institutions like brokers, banks,and NBFCs may offer lower interest rates compared to unsecured loans.
- Simpler Process: The process of pledging securities is simplified and is done electronically, making it efficient and quick as compared to traditional methods of pledging physical securities.
Cons:
- Risk of Loss of Securities: – If the loan is not repaid or the investor fails to meet margin criteria, the lender has the right to liquidate the pledged securities to recover the loan amount. This can lead to loss of your valuable assets.
- Charges and Fees: – Your broker can charge one-time Fees for enabling of DDPI.
- Risk of Market Volatility: In volatile markets, the value of pledged securities can decrease significantly, potentially leading to margin calls. This can require the investor to either provide more collateral or face the risk of their securities being sold by broker to cover the debt.
Attention: While the process is mostly digital, there may still be paperwork and documentation required to set up the DDPI, and the investor must carefully read all terms and conditions associated with the DDPI.
Summary:
The DDPI demat debit pledge system offers a convenient way to access liquidity without selling securities and can be an efficient option for margin trading or securing loans. However, it also introduces risks like the potential loss of pledged securities, costs, and limited control over your assets during the pledge period. It’s essential to weigh the benefits against the risks, especially in volatile market conditions.