How to convert a CNC position to MTF on Zerodha

On Zerodha, an existing CNC (delivery) holding can be converted to an MTF position through a conversion feature in the Kite Holdings view. The conversion is effectively a broker-funded buyback of the delivery position: Zerodha credits the funded amount (up to 75% of the current market value) to your trading account, while the shares move into an MTF-pledged state. This releases liquidity from an existing holding without requiring a sale, allowing the investor to use the freed cash for other purposes while retaining exposure to the stock.

For the reverse direction (repaying the MTF loan and converting back to free delivery), see How to repay MTF interest on Zerodha. For placing a new MTF position from scratch, see How to take an MTF position on Zerodha.

Why convert a CNC holding to MTF

The primary reasons investors use this conversion are:

1. Releasing cash from an existing position without selling: If you own shares of an MTF-eligible stock and need short-term liquidity, converting to MTF releases the funded portion (up to 75% of current market value) as cash in your trading account, without triggering a sale, capital gains, or STT on the delivery leg.

2. Funding new positions or expenses: The released cash can be used for new CNC purchases, F&O margin, or withdrawal to the bank account.

3. Deferred tax planning: Selling and rebuying would trigger capital gains tax and brokerage. A CNC-to-MTF conversion avoids an immediate disposal event (though the tax treatment of MTF positions should be confirmed with a tax adviser, as they are treated as delivery equity for tax purposes).

The key cost is the daily MTF interest on the funded amount (approximately 0.04% per day). If the cash released is deployed productively, the net benefit should exceed the interest cost. If the released cash sits idle, MTF conversion is an expensive substitute for a margin facility.

Step-by-step procedure

Verify that the holding is MTF-eligible

Navigate to Holdings in Kite. Find the security you wish to convert. Hover over the row or click the three-dot menu next to the holding. If the stock is on the SEBI Group 1 MTF-eligible list, a Convert to MTF option appears in the menu. If it does not appear, the security is ineligible for MTF at this time.

The Group 1 eligible list changes periodically as SEBI and exchanges revise it. A stock that was eligible at the time of purchase may have been removed from the list by the time you attempt conversion. Check the current Group 1 list on the NSE or BSE website if the option is absent.

Click Convert and review the conversion terms

Click the three-dot menu next to the holding and select Convert to MTF. A conversion summary panel opens, displaying:

• Funded amount: The amount Zerodha will credit to your trading account. This is typically up to 75% of the lower of your purchase price and the current market value, subject to the exchange-prescribed margin requirements for the specific stock. The exact funded amount may be less than 75% for high-volatility Group 1 stocks.
• Margin retained: The value of shares that remains as your equity in the MTF position (the 25% or more that you effectively own unencumbered).
• Daily interest rate: Approximately 0.04% per day on the funded amount (verify the current rate on the Zerodha website, as it is subject to change).
• Estimated monthly interest: A projection of the monthly interest cost based on the funded amount and the daily rate.

Read these figures carefully. Calculate how long you expect to hold the converted position and whether the expected return on the deployed cash exceeds the total interest cost.

Confirm the conversion

If satisfied with the terms, click Confirm. Zerodha processes the conversion:

1. The shares in your demat account are re-pledged to Zerodha’s clearing member account as MTF collateral.
2. The funded amount is credited to your trading account cash balance.
3. The holding in Kite changes from a free CNC holding to an MTF-pledged holding.

No exchange transaction takes place; there is no new purchase or sale. The conversion is an internal change in the status of the securities between you and Zerodha.

Verify the holding status and funds

After the conversion:

• In Holdings, the security shows an MTF label and a lock icon indicating the pledged state. The Quantity column shows the converted quantity.
• In Funds, the cash balance increases by the funded amount. This cash is now available for withdrawals, new orders, or F&O margin.
• Interest begins accruing from the conversion date. Even if the conversion is made intraday, interest for that calendar day may be charged. Verify the interest commencement date in the Zerodha support article on MTF conversions.

Monitor the MTF position regularly. If the share price declines, the collateral value decreases and Zerodha may issue a margin call.

Converting MTF back to CNC (repayment)

To reverse the conversion and release the shares from MTF pledge, you must repay the funded amount (the outstanding MTF loan balance, including any accrued interest that has not yet been debited). This is done through the MTF repayment flow in Kite, not through a conversion menu. See How to repay MTF interest on Zerodha for the full repayment procedure. After repayment, the shares revert to free CNC delivery holdings.

Note that the MTF-to-CNC path requires repaying the loan in full; it is not possible to partially repay and partially convert.

What can go wrong

• Convert to MTF option absent for an eligible stock. The stock may have been removed from the Group 1 list after your purchase. Contact Zerodha support to confirm eligibility.
• Funded amount is lower than expected. The exchange may have raised the margin requirement for the specific stock (for example, during an Additional Surveillance Measure or enhanced surveillance period). A higher margin requirement means a lower funded ratio.
• Shares not yet settled. Shares purchased on T+0 cannot be converted until T+1 settlement. The conversion option is not available for T+0 purchases.
• Margin call shortly after conversion. If the stock is volatile and the price drops significantly after conversion, the collateral value may fall below the maintenance threshold. Maintain a buffer by not converting to the maximum 75% funded amount.
• Tax consequences. The CNC-to-MTF conversion is not a disposal for capital gains purposes (the shares remain in your demat). However, confirm this with a tax adviser, as the treatment may depend on whether the conversion is treated as a pledge or as a new loan transaction.

Related guides

• How to take an MTF position on Zerodha
• How to repay MTF interest on Zerodha
• MTF on Zerodha
• MTF product code
• MTF interest and brokerage at Zerodha
• How to pledge holdings for margin on Zerodha

References

1. SEBI Circular SEBI/HO/MIRSD/DOP/CIR/P/2019/33, Review of the guidelines on Margin Trading Facility, 19 March 2019.
2. How to convert holdings to MTF, Zerodha Support Portal, https://support.zerodha.com/category/trading-and-markets/margin-leverage/mtf/articles/converting-holdings-to-mtf.
3. SEBI Master Circular for Stock Brokers, Chapter on Margin Trading Facility, SEBI/HO/MIRSD/2024.
4. Zerodha charges schedule, https://zerodha.com/charges/.

Conflict-of-interest disclosure: WebNotes Editorial Team has no financial relationship with Zerodha or any broker. This guide is produced for informational purposes only and does not constitute investment or financial advice. MTF involves significant leverage risk; consult a SEBI-registered investment adviser before converting holdings to a leveraged product.