A loan against shares (LAS), also known as a loan against securities (LAS), allows you to borrow money from a bank or financial institution by using your existing shares as collateral. In India, taking a loan against shares is indeed a common practice offered by various financial institutions, including banks and non-banking financial companies.
You can take a loan against shares and in this arrangement, you pledge your securities (stocks, mutual funds, bonds, etc.) as collateral to obtain a loan from a financial institution.
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The loan amount is usually a percentage of the market value of the pledged securities, which can vary depending on the type of securities and the policies of the lending institution.
Generally, individuals who hold shares in dematerialised form (in a Demat account) are eligible for a loan against shares. The eligibility criteria may vary slightly among different lenders.
The loan amount is typically a percentage of the market value of the pledged securities, which can range from 50% to 70% or even higher depending on the lender’s policies and the type of securities pledged.
For example, the State Bank Of India allows loans up to Rs 20 lakhs against your shares to enable you to meet contingencies, personal needs or even subscribe to rights or new issues of shares.
The bank outlines the facility is for meeting contingencies and needs of a personal nature.
However, the loan is not permitted for subscribing to rights or new issues of shares against the security of existing shares.
Also, the loan is not sanctioned for (i) speculative purposes (ii) inter-corporate investments or (iii) acquiring controlling interest in a company/companies.
Key things;
- Minimum Loan Amount: Rs 50,000/-
- Maximum Loan: Rs 20.00 lakhs
- (Loans against shares not to exceed Rs 10 lakhs if the purpose is for subscribing to IPOs.)
- The nature of loans 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 the loan is sanctioned.
- Processing Fee OD: 0.75% of the loan amount + applicable GST subject to a minimum of Rs.1000 (Non Refundable)
- Rs 1000 + applicable Service Tax (Applicable only for Overdraft A/c)
Before opting for a loan against shares, carefully evaluate your financial situation, the terms of the loan, and the associated risks. It’s advisable to seek advice from a financial advisor to make an informed decision that aligns with your financial goals and circumstances.
