Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Loans Against Securities
Loans Against Securities
Introduction
When urgent financial needs arise, having access to quick cash is crucial. One viable option is taking out a loan. A loan allows you to cover expenses immediately and repay the borrowed amount in manageable installments over a specified period. Traditionally, loans were secured against tangible assets like property or real estate. However, modern financial solutions allow you to secure loans against other assets, including securities. In this guide, we will delve into the concept of loans against securities (LAS), exploring their meaning, features, benefits, and the application process.
What is a Loan Against Security?
A loan against security is a type of loan that allows you to borrow money from a bank or a non-banking financial institution (NBFC) by pledging your investment securities as collateral. This financial product provides a flexible alternative to selling off your investment instruments, such as shares, mutual funds, bonds, etc., especially in times of urgent financial need. Instead of liquidating your investments, you can use them as collateral to secure a loan. The lender evaluates the total value of the pledged securities to determine the principal amount you can borrow. Typically, the loan amount is a percentage of the value of the securities, similar to a loan against property. The interest rate for a loan against securities varies depending on the chosen repayment tenure and the lender’s policies.
How Does a Loan Against Securities Work?
Understanding the mechanics of a loan against securities can help you make informed decisions. Here’s a breakdown of how it works:
Opening an Overdraft (OD) Account: The lender opens an OD account in your name. This account functions as a line of credit from which you can withdraw funds as needed.
Interest Calculation: Interest is calculated based on the amount you withdraw from the OD account during the utilization period. Importantly, you only pay interest on the utilized amount, not the entire loan amount.
Pledging Securities: You pledge specific securities (shares, mutual funds, bonds) as collateral for the loan. This ensures you continue to receive benefits such as dividends and bonuses from your investments.
Access to Funds: The lender provides you with the necessary funds against the pledged securities. The loan amount is typically a certain percentage of the total value of the securities pledged.
What Securities Can You Pledge to Acquire a LAS Loan?
Most lenders accept a variety of securities as collateral for a loan against securities. Commonly accepted securities include:
Mutual fund units
DEMAT shares
UTI bonds
NABARD bonds
Non-convertible debentures
Each lender may have specific requirements regarding the types of securities they accept. It’s essential to check with your lender for their accepted collateral types.
Features and Benefits of Loan Against Securities
Higher Loan Amounts
The minimum loan amount for a LAS loan is INR 100,000, while the maximum limit depends on the individual and the securities pledged. Here’s a general overview of the loan amounts based on different securities:
Shares/Equity-Oriented Mutual Funds in DEMAT Form: Up to INR 20 Lakhs
Equity-Oriented Mutual Funds in Unit Form: Up to INR 10 Lakhs
Debt-Oriented Mutual Funds in Unit/DEMAT Form: Up to INR 5 Crores
Overdraft and Interest
Loans against securities function similarly to an overdraft loan. You only pay interest on the amount utilized from your current account, not the total borrowed amount. This feature makes it a cost-effective borrowing option.
Doubles as a Personal Loan
One of the significant advantages of a LAS loan is its versatility. You can use the loan amount to cover various personal expenses. The interest rate on a LAS loan is generally lower than that of a personal loan. However, there are restrictions on using the funds for speculative activities linked to capital market investments.
Transparent Transaction Process
The loan process is transparent. Lenders provide a separate overdraft account to track all transactions. Any payments made are reflected in the account. Lenders disclose all associated charges, including interest rates and processing fees, upfront.
24x7 Account Access
You can access your loan account anytime, from anywhere in the world. Most lenders offer robust customer care networks to assist with any queries or issues related to the loan.
Basic Eligibility Criteria
To qualify for a loan against securities, you must meet specific eligibility criteria:
DEMAT Account: Applicants must have a DEMAT account with a recognized depository participant.
Resident Status: Both Resident and Non-Resident Indians (NRIs) can apply, either individually or jointly.
Income Source: Applicants must be gainfully employed and provide proof of a regular income source.
Documents Required for Loan Against Securities
Identity Proof
Applicants must submit copies of valid identity proof documents, which may include:
PAN card
Aadhaar card
Driver’s license
Passport
Voter’s ID
Employer ID card
ID cards issued by government entities
Address Proof
Applicants need to provide proof of their current and permanent address. Acceptable documents include:
Aadhaar card
Driver’s license
Passport
Voter’s ID
Latest utility bills (electricity, landline, gas, water)
Leave and license agreements
Income Proof
Proof of income is crucial for loan approval. Required documents may include:
Salary slips for the last 3-6 months
Bank statements for the last 3-6 months
Income Tax Returns for the last 2 years
Proof of other income sources, such as variable pay from employers or passive income
Security Details
Applicants must provide a detailed list of the securities they wish to pledge as collateral. The list should include the names of the securities and the number of units owned.
Applying for a Loan Against Securities
The application process for a loan against securities is straightforward. Here’s a step-by-step guide:
Consult the Lender: Reach out to your lender to understand their specific requirements and the interest rates associated with the loan.
Submit Documents: Provide the necessary documents, including identity proof, address proof, income proof, and details of the securities to be pledged.
Account Setup: The lender sets up an overdraft account in your name.
Pledge Securities: Pledge the chosen securities as collateral for the loan.
Receive Funds: Once the documents are verified and the securities are pledged, the lender disburses the loan amount.
Renewing and Enhancing Your Loan
Loans against securities are initially granted for a period of 12 months, subject to renewal. If you need to enhance your loan or renew it, you can do so by paying a nominal processing fee. This process is typically straightforward and can be completed quickly.
Opt for a Bank of Baroda Loan Against Securities
Bank of Baroda offers competitive loan against securities with attractive features:
Low Interest Rates: The interest rate depends on your credit score (CIBIL score). Higher CIBIL scores can result in lower interest rates.
High Loan Amounts: You can borrow significant amounts against securities like shares, mutual funds, and bonds in DEMAT form. The limit for debt mutual funds can go up to INR 5 Crores.
Easy Application Process: The application and documentation process is simple and user-friendly.
Nominal Processing Fee: Bank of Baroda charges a minimal processing fee of 0.35% for new accounts, with a maximum fee of INR 1000 for Baroda e-trade account holders.
Renewal and Enhancement: You can renew or enhance your loan by paying a small processing fee.
For further assistance with your loan application process, you can contact Bank of Baroda on their toll-free numbers: 1800 5700, or visit your nearest branch.
Conclusion
A loan against securities is a flexible and efficient financial tool that allows you to leverage your investments without liquidating them. By pledging your securities, you can secure a loan to meet urgent financial needs while continuing to enjoy the benefits of your investments. Understanding the features, benefits, and application process of a LAS loan can help you make informed decisions and choose the best financial product to meet your requirements. With competitive interest rates and straightforward application processes, loans against securities offer a viable alternative to traditional loans, providing both liquidity and financial security.
Introduction
When urgent financial needs arise, having access to quick cash is crucial. One viable option is taking out a loan. A loan allows you to cover expenses immediately and repay the borrowed amount in manageable installments over a specified period. Traditionally, loans were secured against tangible assets like property or real estate. However, modern financial solutions allow you to secure loans against other assets, including securities. In this guide, we will delve into the concept of loans against securities (LAS), exploring their meaning, features, benefits, and the application process.
What is a Loan Against Security?
A loan against security is a type of loan that allows you to borrow money from a bank or a non-banking financial institution (NBFC) by pledging your investment securities as collateral. This financial product provides a flexible alternative to selling off your investment instruments, such as shares, mutual funds, bonds, etc., especially in times of urgent financial need. Instead of liquidating your investments, you can use them as collateral to secure a loan. The lender evaluates the total value of the pledged securities to determine the principal amount you can borrow. Typically, the loan amount is a percentage of the value of the securities, similar to a loan against property. The interest rate for a loan against securities varies depending on the chosen repayment tenure and the lender’s policies.
How Does a Loan Against Securities Work?
Understanding the mechanics of a loan against securities can help you make informed decisions. Here’s a breakdown of how it works:
Opening an Overdraft (OD) Account: The lender opens an OD account in your name. This account functions as a line of credit from which you can withdraw funds as needed.
Interest Calculation: Interest is calculated based on the amount you withdraw from the OD account during the utilization period. Importantly, you only pay interest on the utilized amount, not the entire loan amount.
Pledging Securities: You pledge specific securities (shares, mutual funds, bonds) as collateral for the loan. This ensures you continue to receive benefits such as dividends and bonuses from your investments.
Access to Funds: The lender provides you with the necessary funds against the pledged securities. The loan amount is typically a certain percentage of the total value of the securities pledged.
What Securities Can You Pledge to Acquire a LAS Loan?
Most lenders accept a variety of securities as collateral for a loan against securities. Commonly accepted securities include:
Mutual fund units
DEMAT shares
UTI bonds
NABARD bonds
Non-convertible debentures
Each lender may have specific requirements regarding the types of securities they accept. It’s essential to check with your lender for their accepted collateral types.
Features and Benefits of Loan Against Securities
Higher Loan Amounts
The minimum loan amount for a LAS loan is INR 100,000, while the maximum limit depends on the individual and the securities pledged. Here’s a general overview of the loan amounts based on different securities:
Shares/Equity-Oriented Mutual Funds in DEMAT Form: Up to INR 20 Lakhs
Equity-Oriented Mutual Funds in Unit Form: Up to INR 10 Lakhs
Debt-Oriented Mutual Funds in Unit/DEMAT Form: Up to INR 5 Crores
Overdraft and Interest
Loans against securities function similarly to an overdraft loan. You only pay interest on the amount utilized from your current account, not the total borrowed amount. This feature makes it a cost-effective borrowing option.
Doubles as a Personal Loan
One of the significant advantages of a LAS loan is its versatility. You can use the loan amount to cover various personal expenses. The interest rate on a LAS loan is generally lower than that of a personal loan. However, there are restrictions on using the funds for speculative activities linked to capital market investments.
Transparent Transaction Process
The loan process is transparent. Lenders provide a separate overdraft account to track all transactions. Any payments made are reflected in the account. Lenders disclose all associated charges, including interest rates and processing fees, upfront.
24x7 Account Access
You can access your loan account anytime, from anywhere in the world. Most lenders offer robust customer care networks to assist with any queries or issues related to the loan.
Basic Eligibility Criteria
To qualify for a loan against securities, you must meet specific eligibility criteria:
DEMAT Account: Applicants must have a DEMAT account with a recognized depository participant.
Resident Status: Both Resident and Non-Resident Indians (NRIs) can apply, either individually or jointly.
Income Source: Applicants must be gainfully employed and provide proof of a regular income source.
Documents Required for Loan Against Securities
Identity Proof
Applicants must submit copies of valid identity proof documents, which may include:
PAN card
Aadhaar card
Driver’s license
Passport
Voter’s ID
Employer ID card
ID cards issued by government entities
Address Proof
Applicants need to provide proof of their current and permanent address. Acceptable documents include:
Aadhaar card
Driver’s license
Passport
Voter’s ID
Latest utility bills (electricity, landline, gas, water)
Leave and license agreements
Income Proof
Proof of income is crucial for loan approval. Required documents may include:
Salary slips for the last 3-6 months
Bank statements for the last 3-6 months
Income Tax Returns for the last 2 years
Proof of other income sources, such as variable pay from employers or passive income
Security Details
Applicants must provide a detailed list of the securities they wish to pledge as collateral. The list should include the names of the securities and the number of units owned.
Applying for a Loan Against Securities
The application process for a loan against securities is straightforward. Here’s a step-by-step guide:
Consult the Lender: Reach out to your lender to understand their specific requirements and the interest rates associated with the loan.
Submit Documents: Provide the necessary documents, including identity proof, address proof, income proof, and details of the securities to be pledged.
Account Setup: The lender sets up an overdraft account in your name.
Pledge Securities: Pledge the chosen securities as collateral for the loan.
Receive Funds: Once the documents are verified and the securities are pledged, the lender disburses the loan amount.
Renewing and Enhancing Your Loan
Loans against securities are initially granted for a period of 12 months, subject to renewal. If you need to enhance your loan or renew it, you can do so by paying a nominal processing fee. This process is typically straightforward and can be completed quickly.
Opt for a Bank of Baroda Loan Against Securities
Bank of Baroda offers competitive loan against securities with attractive features:
Low Interest Rates: The interest rate depends on your credit score (CIBIL score). Higher CIBIL scores can result in lower interest rates.
High Loan Amounts: You can borrow significant amounts against securities like shares, mutual funds, and bonds in DEMAT form. The limit for debt mutual funds can go up to INR 5 Crores.
Easy Application Process: The application and documentation process is simple and user-friendly.
Nominal Processing Fee: Bank of Baroda charges a minimal processing fee of 0.35% for new accounts, with a maximum fee of INR 1000 for Baroda e-trade account holders.
Renewal and Enhancement: You can renew or enhance your loan by paying a small processing fee.
For further assistance with your loan application process, you can contact Bank of Baroda on their toll-free numbers: 1800 5700, or visit your nearest branch.
Conclusion
A loan against securities is a flexible and efficient financial tool that allows you to leverage your investments without liquidating them. By pledging your securities, you can secure a loan to meet urgent financial needs while continuing to enjoy the benefits of your investments. Understanding the features, benefits, and application process of a LAS loan can help you make informed decisions and choose the best financial product to meet your requirements. With competitive interest rates and straightforward application processes, loans against securities offer a viable alternative to traditional loans, providing both liquidity and financial security.
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