How Loans Against Securities Can Solve Financial Needs?

Introduction

When financial needs require urgent attention, quick access to funds is crucial. Securing a loan is a practical way to handle expenses immediately while repaying the amount gradually. Traditionally, loans necessitated collateral like real estate, but modern options, such as Loans Against Securities (LAS), allow investments to serve as collateral. This guide explores LAS, covering its meaning, features, benefits, and application process.

Understanding Loans Against Securities

A Loan Against Security allows borrowing from banks or NBFCs using investment securities as collateral. This avoids liquidating shares, mutual funds, or bonds during financial exigencies, using them instead to guarantee the loan. The amount is generally a percentage of the pledged securities' value, akin to property loans. Interest rates vary with tenure and lender policies.

Mechanics of LAS

Understanding how Loans Against Securities function is key:

1. Opening an Overdraft (OD) Account: The lender sets up an OD account providing a credit line for withdrawals.
2. Interest Calculation: Interest is charged only on the amount used, not the full amount.
3. Pledging Securities: Securities like shares and bonds are used as collateral, maintaining benefits such as dividends.
4. Access to Funds: Lenders offer funds based on a percentage of the total value of pledged securities.

Eligible Securities for LAS

Common collateral types include:

• Mutual fund units
• DEMAT shares
• UTI and NABARD bonds
• Non-convertible debentures

Different lenders may have preferences, so verifying with the lender is essential.

Key Features and Benefits of LAS

• Higher Loan Amounts: Starting from INR 100,000, with limits based on securities.
• Overdraft and Interest: Functions like an overdraft with interest on used funds only.
• Doubles as a Personal Loan: Provides versatile use and often lower rates than traditional personal loans.
• Transparent Process: Separate accounts manage transactions with clear fee and rate disclosures.
• 24x7 Account Access: Global access and supportive customer care.

Eligibility for LAS

Basic requirements include:

• DEMAT Account: Must have one with a recognized depository.
• Resident Status: Available for both Residents and NRIs.
• Income Source: Proof of stable income is necessary.

Documents Required

• Identity and Address Proof: Documents like PAN, Aadhaar, driver's license, and bills.
• Income Proof: Salary slips, bank statements, tax returns, and proof of other income.
• Security Details: List with security names and units owned.

Applying for LAS

The application process involves:

1. Consult Lender: Check lender specifics and interest rates.
2. Submit Documents: Identity, income, and security details are required.
3. Account Setup: Establishment of an overdraft account.
4. Pledge Securities: Choose and pledge the collateral.
5. Fund Disbursement: After verification, receive the loan.

Renewing and Enhancing Loans

Regularly, Loans Against Securities last 12 months, with renewal options available for a nominal fee. Enhancements are straightforward.

Bank of Baroda Loans

Bank of Baroda provides competitive LAS with:

• Interest Rates: CIBIL score-dependent, with better scores meaning lower rates.
• Substantial Loan Amounts: Loans for shares, mutual funds, up to INR 5 Crores for debt funds.
• Seamless Application Process: User-friendly with minimal processing fees.
• Renewal and Enhancement: Easy through a small fee.

Reach out to Bank of Baroda at 1800 5700 or visit branches for help.

Conclusion

Loans Against Securities offer a flexible monetary tool, leveraging investments without selling them. With enticing interest rates and a straightforward process, it balances liquidity and security, catering to diverse financial necessities.