Loans Against Securities

By BankBazaar | February 10, 2016

Loans Against Securities

Did you know that assets like, Mutual Funds, NSC certificates, and term deposits can be used as collateral when applying for a Loan? If you didn’t already know this, then this article is just the thing for you. We’re going to tell you everything you need to know about taking a loan against your securities. Let’s begin with an explanation what it means to take a loan against securities.

What does this mean?

In simple words, a Loan against Securities is a type of loan where securities like shares, Mutual Funds, term deposits, NSC certificates, etc. are used as collateral. While some banks might require your securities to be liquidated, others give you the option of taking a loan without liquidating your investments.

A loan taken against securities can range from Rs. 1 Lakh to Rs.10 crores depending on the form of securities. You also have the option to get additional finance by putting up more shares, Mutual Funds or securities as collateral.

Additional reading: Tracing the trend of increasing loans against securities

How does it work?

If you are planning to take a Loan against Securities, you need to be aware of a few basic points which are listed below:

  • A loan against securities can only be opted for by an individual and not by companies or joint business owners.
  • The loan offer goes up to 50% of the market value for Mutual Funds and up to 70% of the net asset value of the Mutual Funds.
  • Repayment must done via monthly instalments and only includes the interest rate. The principal needs to be repaid only at the end of the term.
  • You also enjoy an overdraft facility on your loan amount at a nominal rate.
  • You have the flexibility to swap securities depending on the stock market’s performance.
  • The loan has a one year default tenure, after which it gets extended for another year and you can extend it further as per your requirements.
  • You can pre-pay your loan amount at any point of time

Banks offer loans against securities at lower interest rates and they come with an economical overdraft facility. They also come with an ATM/debit card, mobile banking and phone banking facility.

Are you eligible?

In order to apply for a loan against securities, you need to have a good amount of money invested in Mutual Funds, shares, Life Insurance policies or any other form of term deposits. Individuals within the age bracket of 21 to 75 years is eligible to apply for a loan against securities. It requires minimum documentation and is simpler if you have an existing bank account.

If you ever face a financial emergency and need a loan, it might be a good idea to use your shares and assets to apply for one instead of depending on relatives or friends.

Looking for a loan?

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Category: Loans

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4 thoughts on “Loans Against Securities

  1. Jay Mehta

    Great well written post on loan against shares. The basic points are well detailed on how it works. Thanks for sharing.

    Reply
    1. Team BankBazaar

      Hi Jay Mehta,

      Glad to hear that. Have a nice day.

      Cheers,
      Team BankBazaar

      Reply
  2. Sam Wilson

    Loans against shares offer opportunities to monetise investments in listed shares or mutual fund units or other securities to raise capital for business and financing needs. No additional security or collateral, except for the shares are required to be pledged. The value of the loan can range anywhere between 50- 90% of the value of the pledged security. Thanks for sharing

    Reply
    1. Team BankBazaar

      Hi Sam,

      Thanks for stopping by and sharing such useful information. Keep reading our blog for more insights into the world of finance. Cheers, Team BankBazaar.

      Cheers,
      Team BankBazaar

      Reply

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