Short answer Margin (borrowing from your broker to buy securities) increases both potential returns and potential losses across your whole portfolio. It raises volatility, can create margin calls/liquidations, adds interest costs, and increases correlation/ systemic risk — so it must be managed explicitly as part of your risk allocation. (SEBI.gov.in)

What margin does to your portfolio (main effects)

• Leverage amplifies gains and losses: a small price move produces a larger percent change in your invested capital. That can boost returns when you’re right and enlarge losses when you’re wrong. (Investopedia.com)
• Higher portfolio volatility: adding margin makes your overall portfolio swings larger and can push your total risk beyond what you intended. (barrons.com)
• Margin calls and forced liquidation risk: if your account equity falls below the broker/ regulator maintenance requirement, the broker can demand cash or sell positions — often without your consent — which can lock in losses and disrupt your broader plan. Brokers may set “house” requirements higher than regulatory minima. (SEBI.gov.in)
• Interest and carrying cost: borrowed funds accrue interest that reduces net returns and makes holding losing positions more expensive.
• Concentration and correlation risk: using margin often increases exposure to the same market/systemic risks that affect the rest of your holdings, reducing the benefit of diversification. (SEBI.gov.in)

Regulatory / practical notes (India-specific)

• SEBI’s Margin Trading Facility rules require minimum initial margin and maintenance margins (historically initial ≥50% and maintenance ≥40% for clients) and require brokers to disclose margin exposures. Brokers must also follow exposure limits and prudential norms. Rules and exact percentages may be updated, so check your broker’s contract and the latest SEBI circulars. (SEBI.gov.in)

How to measure the impact on your portfolio (practical checks)

• Calculate leveraged exposure: Total exposure = own capital invested + borrowed amount. Express it as a leverage ratio (e.g., 1.5x, 2x).
• Recalculate portfolio risk metrics with leverage: estimated volatility, worst‑case drawdown, and Value at Risk (VaR) all increase with leverage.
• Run stress tests: simulate reasonable price declines (10–30% or larger for concentrated names) and see whether you’d face margin calls or ruin your allocation.
• Factor in interest: subtract expected margin interest from projected returns when deciding whether leverage is justified.

Risk-management best practices

• Limit allocation to margin: set a fixed cap on the share of your total net worth or investable assets that you will ever hold on margin. (Many conservative investors avoid margin entirely.)
• Use stop-losses and position-sizing: keep any single margin position small relative to your margin cushion.
• Maintain a cash buffer: always keep extra liquidity to meet margin calls rather than being forced into fire sales.
• Know your broker’s rules: maintenance margin %, margin-call timing, whether they auto-liquidate, interest rate and how quickly they can change requirements. These rules differ by broker and market. (FINRA.org)
• Monitor leverage daily and de‑risk early: decide in advance thresholds that trigger reducing leverage.
• Consider alternatives: use less-levered derivatives strategies, options for defined-risk exposure, or avoid margin if you can’t afford the downside.

When margin might make sense

• Short-term tactical trades by experienced investors who understand margin mechanics, have strong risk controls and ample liquidity.
• Not generally advisable for long-term buy-and-hold retail investors who can’t tolerate forced selling or magnified drawdowns. (Investopedia.com)

Quick checklist to decide whether to use margin

• Can you afford to lose the borrowed capital and still meet financial goals?
• Do you have a contingency (cash) buffer for margin calls?
• Do you understand your broker’s maintenance levels and auto‑liquidation policy?
• Have you stress‑tested your portfolio with the leverage factored in?
  If the answer to any is “no,” avoid or reduce margin exposure.

If you want, I can:

• Run a simple leverage/stress example with numbers you provide (e.g., portfolio size, margin loan, maintenance %).
• Summarize the latest SEBI circulars or your broker’s margin terms if you paste them here.

Sources

• SEBI margin‑trading facility rules and circulars (SEBI guidance on initial/maintenance margin and disclosure). (SEBI.gov.in)
• Investopedia — “Buying on margin” and leverage effects. (Investopedia.com)
• FINRA / investor alerts on margin risks and broker “house” requirements. (FINRA.org)
• Market commentary on systemic margin debt risks. (barrons.com)

Note: I’m providing general information, not personalised financial advice. If you want a tailored assessment I can run numbers for your exact portfolio and margin terms.