A loan against securities is a secured borrowing option that allows you to pledge your existing financial investments to access funds without selling them. It is ideal for individuals who need liquidity but also wish to continue enjoying the potential growth and income from their investments. Securities eligible for pledging include shares, mutual fund units, bonds, ETFs, and certain government securities.
How a loan against securities works
When you apply for a loan against securities, the lender places a lien on your pledged assets. This process ensures that you retain ownership, but the securities cannot be sold or transferred until the loan is repaid. The loan amount depends on the current market value of the pledged assets and the loan-to-value (LTV) ratio, which typically ranges between 50% and 80% depending on the security type and lender policy.
For example, if you pledge shares worth Rs. 20 lakh and the LTV is 75%, you can get a loan of up to Rs. 15 lakh.
Benefits of a loan against securities
- No need to liquidate investments: You continue to benefit from dividends, interest income, and potential capital appreciation.
- Lower interest rates: Being a secured facility, interest rates are generally lower than personal loans or credit cards.
- Quick processing: With existing securities in a demat or mutual fund account, disbursal can happen within 24–48 hours.
- Flexible repayment: Interest is often charged only on the utilised amount, and prepayment is usually allowed without penalty.
Eligibility and documentation
To apply for a loan against securities, you must:
- Be an Indian resident aged 18 years or above.
- Hold approved securities in demat or statement form.
- Complete KYC verification.
Basic documents include proof of identity, proof of address, and details of the securities to be pledged.
Risks and things to consider
Market volatility can affect the value of pledged assets. If the value drops significantly, the lender may ask for additional security or part repayment to maintain the agreed LTV ratio. Failure to comply could lead to the sale of pledged securities.
It’s also important to remember that while you retain ownership, you cannot sell the pledged securities until the lien is removed.
Conclusion
A loan against securities offers an efficient way to unlock funds without disturbing your investment portfolio. With competitive interest rates, quick access to liquidity, and the ability to retain investment ownership, it can be a smart choice for meeting urgent financial requirements while preserving long-term wealth-building potential. However, borrowers should be mindful of market risks and repayment commitments before proceeding.
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