Zerodha is one of the leading online discount brokers in India, offering a range of trading products and services to its customers. One of the trading products that Zerodha offers is CNC, which stands for Cash and Carry. CNC is a type of order that is used for delivery-based trading in the equity segment. In this blog post, we will explain what CNC is, how it works, and what are its benefits and limitations.
What is CNC?
CNC is an abbreviation for Cash and Carry. It is an order type used for delivery-based orders. If you want to buy a stock and want to hold it for more than two days, then you need to use the CNC order type. Zerodha offers brokerage free delivery trading, which means that all CNC orders are free of brokerage. CNC is just a product code, so you need to keep that in mind. If you want, you can sell the shares on the same day using the CNC product code. However, the sell quantity cannot exceed the buy quantity. If you sell the shares on the same day, there is no penalty. These trades will be considered as intraday trading in such cases, and the brokerage applicable to equity intraday trades will be charged. You do not get any leverage or have your position automatically squared off when using CNC product code. Unless you buy and sell on the same day, you cannot sell using the product code CNC unless you have the stock in your DEMAT account.
How does CNC work?
When you place a CNC order, you need to have the full amount available in your trading account to buy the stock. For example, if you want to buy 100 shares of Reliance Industries at Rs. 2000 per share, you need to have Rs. 2,00,000 in your account. You cannot use the margin or leverage provided by Zerodha for CNC orders. Once you place the CNC order, the stock will be delivered to your DEMAT account after two working days, which is known as the T+2 settlement cycle. For example, if you buy the stock on Monday, it will be delivered to your DEMAT account on Wednesday. Similarly, when you sell the stock using CNC, the money will be credited to your trading account after two working days. For example, if you sell the stock on Monday, you will receive the money on Wednesday. You can use the money to buy other stocks or withdraw it to your bank account. You can also use the collateral value of the stock to trade in the F&O segment, subject to certain conditions. To learn more, see How to use the stocks in your demat account as margin for trading F&O?
What are the benefits of CNC?
CNC is a simple and convenient way to invest in the stock market for the long term. Some of the benefits of CNC are:
- You do not have to pay any brokerage for delivery trades, which saves you money and increases your returns.
- You do not have to worry about the market fluctuations or the auto square-off timings, as you can hold the stock for as long as you want.
- You can benefit from the dividends, bonus, splits, and rights issues announced by the company, as you are the owner of the stock.
- You can also benefit from the long-term capital gains tax, which is lower than the short-term capital gains tax. If you hold the stock for more than one year, you do not have to pay any tax on the profit, as per the current tax laws.
What are the limitations of CNC?
CNC is not suitable for everyone, as it has some limitations and risks. Some of the limitations of CNC are:
- You need to have the full amount available in your account to buy the stock, which may limit your buying capacity and diversification.
- You do not get any leverage or margin for delivery trades, which means you cannot amplify your returns or trade with more money than you have.
- You are exposed to the market risk, as the stock price may go down or up depending on various factors. You may incur losses if you sell the stock at a lower price than you bought it.
- You are also exposed to the liquidity risk, as the stock may not have enough buyers or sellers at a given time. You may not be able to sell the stock at the desired price or quantity.
CNC is a trading product offered by Zerodha for delivery-based trading in the equity segment. It is a good option for investors who want to buy and hold stocks for the long term, without paying any brokerage. However, it also has some limitations and risks, such as the lack of leverage, margin, and liquidity. You should understand the pros and cons of CNC before using it, and make informed decisions based on your risk appetite, financial goals, and market conditions.