The Most Authentic Guide on Personal Finance and Investments


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11 Salient Features of Loan Against Securities

Redeeming your securities may 
(a) either not be permitted or 
(b) result in you incurring a loss or 
(c) you may prefer holding them for long term. 

Therefore, pledging them may be a more viable option vis-a-vis selling them, to raise money for any short-term immediate requirements. Many banks and non-banking finance companies (NBFCs) actively lend against varied securities that you may be holding.

Given that different banks/NBFCs offer such loans at differing terms and conditions, listed below are the indicative salient features of this 'Loan against Securities' facility.

1. Types of facilities
Setting up an overdraft facility is the most prevalent form of lending against securities. Accordingly, you can draw down any amount you desire within the limit set-up against the securities that you offer as a collateral. This saves you money as you have to pay interest only to the extent of amount you actually withdraw and the time you utilize it. You can, however, also opt for the plain and simple loan.

2. Eligible Securities 
Most lenders offer loan against the following: 
- Shares (in demat form)
- Mutual Funds (both debt and equity including ETFs)
- Insurance Policies
- Savings Bonds
- NSC/KVP (Demat form)

3. Drawing Power
Lenders would normally lend you upto
- 50% of the Market Value of shares/MFs
- 85% of surrender value of insurance policies
- 80% of accrued value of NSC/KVP

4. Purpose
The loan can be availed only for personal use. The amount drawn cannot be utilized in speculative activities.

5. Loan Amount
Under this facility, you would generally be able to borrow around Rs.1 lakh at the minimum and Rs.10 crores at the maximum.

6. Loan Period
These loans are normally of one year duration and renewable on an annual basis.

7. Interest
Interest will depend on the prevailing market rates. However, given that these are secured loans, they would be cheaper than personal loans and credit cards. Hence, it is always advisable to first explore this option rather than being lured by personal loans / credit cards. 

8. Other costs
- Processing charges
- Administrative expenses
- Legal fees

9. Part-prepayment / Foreclosure Charges
Normally, Nil.

10. Documentation
- Identity Proof
- Address Proof
- Signature Proof
- Date of birth
- Pay-slip/IT Return
- Bank Account statement

11. Guarantor / Additional Security
Not Required

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