MTF allows investors to buy stocks by paying only a portion of the total value upfront, with brokers funding the remaining amount. This helps traders take larger positions with limited capital and can amplify gains in rising markets.

However, MTF also increases risk. Losses can widen sharply if stock prices fall. Brokers may face difficulty recovering dues if leveraged positions become illiquid, especially in mid-cap and small-cap stocks where lower circuits can block exits during market crashes.

In a post on X, Kamath said MTF books are growing rapidly across brokers despite broader markets remaining range-bound. He warned that the biggest risk emerges during sharp market corrections, particularly in illiquid stocks.

According to data shared by Kamath, nearly 50% of the industry's MTF exposure is linked to non-F&O stocks. The outstanding MTF book on the NSE has climbed sharply since 2020 and stood at Rs 1,22,151 crore as of 15 May 2026.

Kamath said brokers face the risk of 'bad debit' if stock prices fall beyond the margin provided by clients. He added that the risk rises when customers pledge shares as collateral and take leveraged positions in the same stock.

'If markets crash, brokers could end up holding losses from MTF positions they can't exit and that puts the entire ecosystem at risk,' Kamath said.

He also said Zerodha currently does not allow collateral margin for buying MTF positions, although competitive pressure may eventually force brokers to adopt such practices.

Kamath added that Zerodha's MTF book is around 25% of its net worth, while for some brokers the ratio could be close to 500%, which is the maximum level allowed by regulators.