What happens to the balance in your brokerage accountMany stock investors keep more money in their brokerage accounts than they actually use. This may be because they are waiting for stock prices to dip or for earnings to turn favourable or some other reason. However, clients lose out on interest on their money in this period. They may also lose track of it and brokers may get to enjoy long periods of ‘interest-free’ funding.

In order to stop this from happening, SEBI formulated a set of rules in 2009. These rules require brokers to credit unutilised funds back to the client’s account at least once in 90 days. Balances below Rs 10,000 are exempted. If you have a futures and options (F&O) position, a 125% of the margin money can be retained by the broker. The SEBI rules also apply to stocks which have to be moved to the client’s demat account at least once in 90 days.

However, some brokers have found a way of avoiding this hassle by enabling a default purchase of liquid funds with the unutilized money. For instance, Zerodha has enabled the purchase of DHFL Instacash Fund with this type of unutilised money. Money invested in liquid funds is currently earning a return of 5-7% but this changes according to prevailing interest rates. No brokerage or Securities Transaction Tax (STT) applies to this type of investment.

This type of investment often does not need any action on your side. Brokers automatically make the purchase after 90 days elapse, with the funds lying unutilised. Permission for this transaction is usually taken beforehand while setting up the account or enabled as a default option online.

Note, this situation may not arise if your broker is your bank. Several bank-owned brokers do not transfer funds to their own account but instead retain them in the customer’s bank account. They automatically debit the bank account when a purchase of stocks is made and credit it when shares are sold. Authorization for such credits/debits is taken while setting up the account.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.