Loan Against Securities and Shares | Apply for Loan on Bonds, Shares & Mutual Funds India | rurashfin.com (2024)

FAQs

What is a loan against shares securities? ›

Loan against securities is a loan where you pledge your shares, mutual funds or life insurance policies as collateral to the bank against your loan amount.

(Loans against shares not to exceed Rs 10 lacs if the purpose is for subscribing to IPOs.) Nature of Loan is Overdraft. You will need to provide a margin amount of 50% of the prevailing market prices of the shares being offered as security. Pledge of the demat shares against which loan is sanctioned.

Margin loans allow you to use your shares or managed funds as security against the money you borrow. However, if the value of your investment falls below a certain point, the lender can issue a margin call – a demand that you top up your investment or repay some of the loan.

Loan-to-value ratio

The RBI circular on loan against shares directs that the maximum LTV ratio for loans approved by NBFCs must be less than 50%. This means that if the value of your collateral security is Rs. two lakhs, the maximum loan amount that the lender can approve is 50% of Rs. Two lakhs which is Rs.

What are the maximum and minimum limits to avail the Loan Against Securities? The maximum limit is Rs 20 lakh and the minimum limit is Rs 50,000 per market value of the security.

Leverage your investments to raise quick funds via HDFC Bank's loan against securities. Get up to 80% of the value of your securities against a wide range of collaterals, including shares, mutual funds, life insurance policies, bonds, etc.

You usually repay your loan against securities in small monthly instalments, which comprises only the interest amount. This instalment gets deducted from your registered bank account on a pre-set date.

The strategy is called 'Buy, Borrow, Die'. This approach involves buying appreciating assets like stocks, collectibles, and particularly real estate; borrowing against these assets at less than their appreciation rate; and eventually passing the assets down to heirs, often with little or no capital gains tax liability.

“In respect of borrowers having aggregate fund based working capital limit of ₹ 150 crore and above from the banking system, a minimum level of 'loan component' of 40% shall be effective from April 1, 2019," RBI said, adding that the component will increase to 60% from 1 July.

Features of Loan against Securities

Debentures, shares, bonds or mutual funds are offered as collateral. The tenure of the loan against security is one year, but it can be easily renewed. The rate of interest usually ranges from 12 - 15%.

Is loan against securities secured or unsecured? ›

A loan against securities, on the other hand, has lower interest rates as it is a secured loan and the lender has a collateral to fall back on in case of default. However, it may vary from bank to bank as some lenders may offer you lower interest rates on a personal loan.

Securities lending involves the owner of shares or bonds transferring them temporarily to a borrower. In return, the borrower transfers other shares, bonds or cash to the lender as collateral and pays a borrowing fee.

The trader borrows the asset, then—by a specified later date—buys it back and returns it to the asset's owner. The investment philosophy is that the borrowed asset will decline in price and the investor will earn a profit by selling at a higher price and buying back at the lower price.

Borrowers generally borrow securities in order (a) to cover a short position (settlement coverage, naked shorting, market making, arbitrage), (b) to support a financing transaction motivated by the desire to lend cash, and to transfer ownership temporarily to the advantage of both lender and borrower (tax arbitrage, ...

Securities lending is important to short selling, in which an investor borrows securities to immediately sell them. The borrower hopes to profit by selling the security and buying it back later at a lower price.