What is Loan Against Securities?
A loan against securities or loan against shares is a loan facility given to customers in which the loan bearer needs to pledge its security as collateral to avail of a loan. It has multiple types such as loans against insurance, loans against MFs, loans against National Savings Certificates or more.
A loan against securities is popular among investors as it is an easy way to get a loan without compromising your security. Also, it allows you to receive a loan of up to 80% on multiple financial instruments.
This is a unique kind of service that enables the bearer to take advantage of dual service viz perpetuating ownership on your investment along with receiving their benefits.
Types of Collateral for Loan Against Securities
DEMAT Account and Shares
NCD (Non-Convertible Debentures)
LIC Policies and UTI Bond
Mutual Fund Units
National Savings Certificate
Kisan Vikas Patra and more.
How Does Loan Against Security Work?
A loan against security is generally offered as an overdraft facility in which you need to pay interest only on the loan amount you use and the period you use for it. This can be done immediately after the securities you offer for the collateral.
Features of Loan Against Shares:
A loan against shares is considered one of the secured forms of loans that can be given against the securities present in your account. Following are the features of loan against shares:
- The loan amount can be given up to 80% of the collateral value.
- The interest rate of loans against shares lies between 9% to 12%.
- The normal tenure of a loan against shares is 1 year but you can extend it for further years.
- Loan against shares is eligible for Indian residents, NRIs, Hindu Undivided Families, Sole Proprietorship, Public and Private funds and more.
- The desired age for the borrower lies between 18 to 65 years.
- Charges for loans against shares are initial processing fees, Annual Maintenance Charges (AMC), stamp duty and more.
Advantages of Using Loans Against Securities
- A loan against shares offers you to remain the owner of your securities.
- It also gives you a facility to receive bonuses and dividends on your investments.
- You can get a high loan value which is up to 80% of the collateral deposited.
- A loan against security requires minimum paperwork, hence you get an instant loan without much
- Also, it provides instant liquidity which in turn improves investment potential.
- Loan against security allows you a flexible repayment facility along with penalty-free foreclosure.
Eligibility Criteria for Applying Loan Against Securities
Following are the eligibility criteria for Loan Against Securities
- The resident should be Indian, NRI, HUF.
- The minimum age for applying for LAS is 21 years.
- You should either be salaried or a self-employed individual.
- The securities you pledge as collateral should be approved by the bank.
From Where Could You Take A Loan Against Shares?
Banks and NBFCs have the authority to sanction loans against securities. Here, we will help you to identify your preferred creditor:
|Margin Requirement||50% against equity/equity-oriented mutual funds and lenders’ discretion on debt/ debt-based mutual funds.||50% against equity/equity-oriented mutual funds and lenders’ discretion on debt/ debt based mutual funds.|
|Capitalisation on Loan Amount||10 Lakh against physical shares, 20 Lakh against Demat shares||No Cap on the amount of Loan|
|Loan Processing||Time consuming process||Easy and Fast Process.|
It is preferred to take a loan from NBFC as compared to a bank as it is the safe, fast yet most effective way to avail of a loan without much hassle.
Purposes of Taking Loan from Other Securities:
There are different purposes for taking a loan against shares which can be mentioned below:
- Working capital requirement for business:
Many SMEs take loans against securities just to expand their business. With this new loan amount, businesses usually fulfil their daily working capital requirement which in turn enhances their profits and growth.
- Business Expansion:
This is the most valid reason SMEs take loans against their securities to increase scalability. This will help businesses to work on new products or open new branches in different cities.
- Investment in Capital Market:
If you want to increase your investment capital and have confidence in your stock picks, then taking out a loan can be a good option for you as getting a loan on your present investment will help you raise future investments as well.
- Other Personal Usage:
Loan against shares can also be used for personal purposes such as buying a home, child’s education and marriage etc.
Parameters for Credit Underwriting
The bank or NBFC reviews your loan application to check your creditworthiness before giving you a loan. Here are the following parameters:
- Checking Client’s Profile, Security Provider and more:
Lenders shall check for market reputation and decide the credibility based on the number of years you have been in a business that is known for vintage.
- Security Analysis:
In security analysis, the creditors take a detailed insight into your financial securities. He determines the proper value of the security, keeping in mind the several fluctuations happening in the market.
- Financial Statement:
You need to submit all the necessary financial documents such as the cash flow statement, balance sheet, income statement of your business.
Can I Get a Loan Against My Securities?
Yes, you can. A loan against shares is offered against the securities you want to pledge your holdings as collateral. This will help you to meet new investment and liquidity requirements.
What is the Concept of Loan Against Securities?
Loan against shares enables borrowers to get loans against financial securities such as bonds, stocks, mutual funds, insurance to meet your requirements. You can apply for a loan against shares for your business purposes or in case of urgent financial aid.
How many loans Can I Get Against Securities?
You can get a loan of Rs 20 Lakh against your securities.
Can I Get a Loan on Equity Shares?
Yes. you can get a loan on equity shares where you can pledge shares in the form of equity to avail the benefit of the loan.