Zerodha pledge haircut explained

Overview

The pledge haircut at Zerodha is a percentage deduction from a pledged security’s value to arrive at the collateral margin it generates, and it is a risk buffer, not a fee: no money leaves your account, and the pledged security keeps its full market value. When a Zerodha client pledges holdings for futures and options margin, the trading margin credited is always less than the market value of those holdings, and the gap is the haircut.

The reason is that collateral has to be worth selling in a hurry. If a pledged holding falls in value and the client cannot cover the resulting shortfall, the broker and the Clearing Corporation may sell the security to recover the debit. The haircut is the cushion that makes that recovery viable even if the price has moved against them between the last valuation and the sale. A larger cushion is needed for a volatile stock than for a liquid index fund, so the haircut is set per security rather than as one flat number. This article explains what the haircut is, how the collateral figure is worked out from it, why it differs across securities, and where the live number is published. For the surrounding process, see margin pledge mechanics on Zerodha and pledge and collateral margin on Zerodha .

The haircut is not a fee

The single most common misunderstanding is that the haircut is a charge. It is not. Pledging costs a flat Rs 30 plus 18% GST per request, per ISIN, set out in pledge and unpledge charges at Zerodha . The haircut is separate and takes nothing from your account.

Consider a stock worth Rs 1,00,000 with a 10% haircut. The collateral margin credited is Rs 90,000. Your shares are still worth Rs 1,00,000; you still own them, they still sit in your own demat account, and they still earn dividends. Nothing has been deducted from their value. What the 10% represents is the portion of the holding Zerodha and the Clearing Corporation will not lend against, so that if the stock falls they can still sell it and recover the exposure. The moment you unpledge, the full Rs 1,00,000 is back in play with no haircut applied, because the security is no longer collateral.

So the haircut reduces borrowing power, not wealth. It answers the question “how much trading margin will this holding support” rather than “what is this holding worth”.

How collateral margin is worked out

Zerodha computes collateral margin from the previous closing price of the pledged security, then deducts the haircut. The credited margin shows on the Funds page, separate from your cash, and can be verified through how to verify collateral details ; it appears as collateral equity on Kite for stocks and ETFs, and as collateral liquid funds for cash-equivalent instruments.

The arithmetic is a single subtraction. Take the previous closing value of the pledged quantity, apply the haircut percentage, and the remainder is the collateral margin:

These percentages are illustrative to show the arithmetic, not the haircut for any named security. Zerodha’s own worked example for Sovereign Gold Bonds uses a 10% haircut, so Rs 100 of SGBs pledged gives Rs 90 of collateral. Some mutual fund collateral is credited only on the next trading day rather than within minutes, so the figure can take a valuation cycle to appear.

Two costs sit downstream of the collateral figure and are worth keeping separate from the haircut. Neither is the haircut, and neither is charged simply for pledging.

The haircut is not the 50:50 cash rule

The haircut and the cash rule both reduce how much of a pledged holding you can actually trade on, but they work at different stages, and confusing them leads to wrong margin maths.

The haircut acts first, at valuation: it turns market value into collateral margin. The 50:50 cash rule acts second, at deployment: SEBI requires that at least half the margin for an overnight F&O position be met in cash or cash equivalents, so collateral from ordinary stocks can meet only the other half. Take the Rs 90,000 of collateral from the earlier example. That Rs 90,000 is the post-haircut figure, but if it comes from a non-cash stock it can fund only up to 50% of an overnight requirement; to use the whole Rs 90,000 you also need Rs 90,000 in cash or cash-equivalent collateral. The split is set out in the 50:50 cash-collateral rule and cash component versus collateral component .

Cash-equivalent collateral behaves better on the second stage but still takes a haircut on the first. Liquid funds, Liquid BeES , government securities and Zerodha’s LIQUIDCASE count toward the cash leg and their post-haircut collateral is usable in full, but they are still valued at close minus their own haircut. The haircut on a liquid instrument is simply small.

Using non-cash collateral beyond the 50% limit attracts a delayed-payment charge of 0.035% per day, which is 12.775% a year, plus GST, on the cash shortfall. Buying options funded by collateral attracts 0.05% per day on the amount used. Those are financing costs on how you use the margin, not the haircut on how it was valued.

Why haircuts differ across securities

Each approved security carries its own haircut, and the driver is risk. The Clearing Corporation looks mainly at a security’s Value at Risk, a statistical estimate of how far its price could move over a short horizon, together with its liquidity. A stock that can gap 20% in a session needs a deeper cushion than an index fund that rarely moves 2%, so the volatile stock carries the larger haircut. Liquidity matters too: a thinly traded security is harder to sell into a falling market, which argues for a bigger buffer. The Value at Risk margin framework is the same risk measure that drives intraday margins.

As a rough map, the most liquid securities in the top group tend to sit at the low end, often around 10 to 15%, while less liquid or more volatile securities run higher, sometimes 25 to 50%, and the riskiest are not accepted at all. These bands are only orientation. A security with a Value at Risk of 100% is treated as too risky to pledge and is excluded entirely, one of the reasons a holding may not be pledgeable, covered in securities eligible for pledging on Zerodha .

Do not carry a specific haircut for a named stock or fund in your head. The number is revised as risk changes, so a stock at 12% one quarter can be at 18% the next.

Where the haircut is published

The live per-security haircut is published on Zerodha’s approved-securities list at zerodha.com/approved-securities. Each entry shows the security, its haircut, and the collateral value you would receive, and the same list decides eligibility in the first place. Because the Clearing Corporation revises it, this page is the only reliable source for the current number. Search the exact security, read the haircut and collateral value beside it, and use that rather than an assumed figure.

Kite also shows an estimated collateral value and haircut on the pledge form itself, before you submit. That estimate uses the previous closing price and is indicative; the margin actually credited at settlement reflects the opening price of the settlement day, so the final figure can differ slightly from the on-screen estimate. The end-to-end flow is in how to pledge holdings for margin , and the pledge charges page covers the one-time fee that applies alongside.

After you pledge: revaluation and shortfall

The haircut is applied once at valuation, but the collateral margin it produces is not frozen. Zerodha revalues pledged securities as their prices move, so the credited margin rises when a pledged holding gains and falls when it drops. A sharp decline in a pledged stock reduces the collateral and can push the F&O account into a margin shortfall.

If that happens, you cover the gap by adding cash or pledging more securities. If you do not, positions can be squared off to bring the account back into compliance, and pledged securities can themselves be sold to recover a debit. This is the practical reason the haircut exists: it buys time and price room between the last valuation and any forced sale. Managing a pledged book therefore means watching not just the haircut at pledge but the mark-to-market on the collateral afterwards, and keeping the cash leg intact so a routine price dip does not tip into a shortfall . To release collateral once you no longer need it, follow how to unpledge holdings , which is free.

See also

• Securities eligible for pledging on Zerodha
• Pledge and unpledge charges at Zerodha
• Margin pledge mechanics on Zerodha
• Pledge and collateral margin on Zerodha
• How to pledge holdings for margin on Zerodha
• How to unpledge holdings on Zerodha
• The 50:50 cash-collateral rule
• Cash component versus collateral component
• How to use collateral margin for F&O
• Value at Risk margin on Zerodha
• Collateral equity on Kite
• How to verify collateral details
• LIQUIDCASE as collateral on Zerodha
• How to buy Liquid BeES on Zerodha
• Sovereign Gold Bonds
• MTF on Zerodha
• Zerodha Console
• Kite
• Zerodha

External references

• Zerodha approved securities list
• SEBI
• Zerodha Support: pledging for collateral margin
• NSE Clearing

References

1. Zerodha Support, what pledging is and how collateral margin is computed, support.zerodha.com (accessed 1 July 2026).
2. Zerodha, approved securities and per-security haircut list, zerodha.com/approved-securities (accessed 1 July 2026).
3. SEBI Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/171, “Margin obligations to be met by way of pledge / re-pledge in the Depository System”, 9 September 2020.
4. SEBI framework on Value at Risk based margining for the cash and derivatives segments.

Conflict-of-interest disclosure. This article is published by the WebNotes Editorial Team for informational purposes and is written independently. WebNotes operates a Zerodha account-opening referral programme, disclosed on the pages that carry the referral link; this page does not carry it and earns no referral commission from the mechanics described here.