Invocation-cum-redemption
A single-instruction functionality for invoking margin-pledged mutual fund units not traded on an exchange, moving them to the TM/CM's Client Securities Margin Pledge Account and auto-redeeming them there.
In plain language
Most margin-pledged securities, once invoked on a client's default, simply move to the lender's account as free balance. Mutual fund units that are not traded on any exchange cannot be handled quite that simply — there is no market to sell them into, so the only real way to realise their value is to redeem them with the AMC.
Depositories built a specific functionality for exactly this case: invocation-cum-redemption. It combines the invocation step and the redemption step into one instruction.
How it works
From the workbook's framework for handling invocation of margin pledged securities: under SEBI's circular of 3 June 2025, upon invocation by the TM, margin-pledged securities generally get blocked for early pay-in in the client's demat account. Mutual fund units not traded on the exchange are the exception: for these, depositories provide the "invocation-cum-redemption" functionality, whereby the invoked MF units first move into the TM/CM's Client Securities Margin Pledge Account, and are then automatically redeemed from that account.
A worked example
A client has pledged mutual fund units worth Rs 8,00,000 — units that are not traded on any stock exchange — as margin collateral with a Clearing Member. The client defaults, and the CM invokes the pledge.
Because these are non-exchange-traded MF units, ordinary invocation (moving the units straight to the CM's free balance to sell in the market) is not possible — there is no exchange to sell into. Instead, under invocation-cum-redemption, the units first move into the CM's Client Securities Margin Pledge Account, and from there are automatically redeemed with the AMC, converting the holding into redemption proceeds the CM can actually use to recover its dues.
Had the same client instead pledged exchange-traded shares, ordinary invocation would apply: the shares would simply be blocked for early pay-in in the client's account, with no redemption step involved.
Why NISM asks about it
This sits within the workbook's margin-pledge invocation framework, alongside the general rule that invoked securities are blocked for early pay-in. Expect a question on which securities need invocation-cum-redemption (mutual fund units not traded on an exchange, specifically) and what it does differently from ordinary invocation (auto-redemption via the Margin Pledge Account, rather than a market sale).
Common exam traps
- Invocation-cum-redemption applies only to mutual fund units not traded on an exchange — ordinary exchange-traded securities follow the standard invocation route (blocked for early pay-in).
- The units land in the TM/CM's Client Securities Margin Pledge Account before being redeemed — they are not redeemed directly from the client's account.
- Redemption is automatic once the units reach that account — no separate redemption request is needed from the TM/CM.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Margin pledgeThe only permitted way for a client to give securities as margin — a special pledge created in the depository system that leaves the shares in the client's own demat account instead of transferring them to the broker.
- Client Securities Margin Pledge AccountA dedicated demat account a Trading or Clearing Member opens to accept client securities as margin by way of pledge, the only route permitted since 1 August 2020, replacing title-transfer collateral arrangements.
- Pledge release for early pay-inA single-instruction functionality that releases a client's margin-pledged or CUSPA-pledged securities and sets up early pay-in for them immediately, when the client sells shares already pledged as margin.