Zerodha allows you to use mutual funds as collateral. Some mutual funds are treated as cash equivalent (e.g. few liquid, money market and gilt funds) and others are treated as equity (e.g. various other debt funds and equity funds). Here is the link to see allowed funds. At least 50% margin must come for cash or equivalent to avoid interest charges.
Steps to buy and pledge mutual funds to get collateral for options trading.
- Place an oder for the mutual fund on Zerodha > coin (e.g. Axis money market fund)
- It may take 1 day for the mutual fund to appear in coin account and 2 days to appear in console > portfolio.
- Go to Zerodha console > Portfolio > Holdings as shown below
- Select the mutual fund and click on 3 dots to see the pledge menu.
- Click on pledge and select appropriate quantity. This will schedule the pledging request and you will get a confirmation SMS from CDSL (around after 2pm and 5pm)
- Click on the verification link or https://www.cdslindia.com/Authentication/OTP.aspx?id=P to view the pleading request on CDSL and approve these. You can enter your full demat account number and confirm with OTP to view and approve requests.
- Once the request is approved, Zerodha will provide the margin next day. You can view the margin status in Funds section on Zerodha Kite as shown below
- Once margin is available, you can start trading.