6 Important Facts About Loan Against Shares

Shares are useful collateral to raise funds during times of need. Loans can be raised against shares by pledging the same as collateral security to a lending institution that offers loans against shares or loans against securities. Thus, loans against shares are secured loans that allow you to raise instant funds by keeping your shares as security against default in repaying the loan; which means you retain your investments and finance your expenses as well with the funds you’ve raised for a short term.

Uncommon though, borrowing against your equity holding such as shares or mutual funds to meet financial requirements are proven convenient ways to raise instant funds instead of selling the shares in part or in full. Such funds are in fact available at lower rates of interest, which makes this option a viable option. In addition, made available as an Overdraft (OD) facility, you have the freedom to withdraw funds or make payments at your convenience. The lending institution charges you interest only on the utilized amount, and for the duration until repayment. Prepayments are also an additional positive point, since you can prepay the amount of funds used without being charges prepayment penalties.

Being an investor in the stock market in India helps, since you have the advantage to raise funds by raising a loan against securities or shares in your Demat Account without liquidating the same. This can be done either by pledging your holdings to your stockbroker; alternatively, a financial institution can be approached for funds to cover fiscal needs. Listed below are some important facts for consideration before availing a loan against shares. Do remember, only shares held in a Demat account with NSDL are accepted as collateral security.

Financial Institution

Not all stockbrokers or financial institutions such as banks and NBFCs offer loans against shares. Therefore, scan the markets for a dependable source such as a Reserve Bank of India recognized institution that offers this facility. Once you’ve selected the right institution, focus on the fundamentals such as the rate of interest on the loan you seek. Remember, repaying the loan should not be a factor that contributes to a hole in your pocket.

Eligibility

Eligibility criteria differ from the institution; before you start the application process, check the eligibility criteria to avoid any delays. When done with eligibility checks, finalize the institution from which you plan to seek the facility. Once the institutions are satisfied with your eligibility after scrutiny, your application finds admittance.

Amount of Loan

Values of shares and securities as a rule as subject to change in accordance with market conditions, which gives you a fair idea of how much loan you are eligible to receive based on the market value of the collateral you plan to pledge as security for a loan against shares. Financial institutions generally offer only a percentage of the market value of the shares by way of a loan. Depending on the institutions, you are eligible to receive 60% to 80% of the value of the shares that your pledge as security to avail funds.

List of Acceptable Securities

Again, the question of selecting the right financial institutions arises. The reason being, not all financial institutions advance money against all kinds of securities. Some institutions accept shares and mutual funds as collateral, while others don’t. Get a prospectus from the lender with a clear listing of the types of securities that are considered for a loan against shares. Should you find your securities listed in the institution’s list of securities acceptable, get ready to consider the next important factor.

Applicable Fees and Charges

Loans generally come with charges such as processing fees, annual maintenance fee, closure charges, and other charges as may be applicable depending upon the lender you’ve selected. There may be fees also such as pledge and de-pledge fees, which will have to be paid. Other charges may have to be paid for ATM facilities, cash deposits or withdrawals, NEFT, or RTGS charges, etc. Check the levies and charges applicable before you start of on the process of application to make an informed decision and be on the safe side.

Pledged Shares

Your shares as securities can be pledged partially or wholly. Once you’ve availed funds as a loan against shares, you cannot trade or sell calls until you repay the loan amount. In case of default in repayment, the lending institution has the right to liquidate your holdings and recover the amount.

Shares are assets. To get Loan against Shares keep your PAN, Aadhaar Card, Bank Account, and Depository details at hand. Rest assured, Ruloans takes care of funding needs eagerly in terms of easy finance. Should you be interested, visit www.ruloans.com to choose the best offer from a selection of Loans against Shares offerings, and call 1800 266 7576 for the best advice on how to get funds.