What It Means
A Haircut is the percentage discount applied to a pledged security's market value before it counts as usable margin — protection against the pledged stock's own price falling.
How It Works
Stable, liquid large-cap stocks typically carry a haircut around 12.5%–20%; smaller, more volatile, or illiquid stocks can carry haircuts as steep as 100%, meaning they add zero usable margin at all. SEBI and the exchanges set and revise these percentages, and can move them sharply during high-volatility periods or around corporate actions like a bonus issue or stock split.
Example
₹1,00,000 worth of shares pledged at a 20% haircut gives you ₹80,000 of usable margin, not the full ₹1,00,000.
Warning
Always check a specific stock's current haircut before pledging it — a volatile or thinly traded stock can give you far less usable margin than its market value suggests, or none at all.