Stories
Loan Against Shares: A New Investor's Guide to Liquidity Without Selling Investments
- •A loan against shares allows investors to use their shares as collateral to secure funds without selling their long-term investments.
- •The loan amount is determined by the value of pledged shares and the lender's loan-to-value ratios, with amounts ranging from Rs. 25,000 to Rs. 1,000 crore.
- •Eligibility typically requires applicants to be Indian residents aged 21-90, with eligible listed shares free from encumbrances.
- •Key benefits include retaining investments, accessing substantial funds, faster processing, and flexible repayment options.
- •New investors must understand risks like market fluctuations affecting collateral value, potential margin calls, and the consequences of delayed payments, alongside reviewing all fees and charges.
Key Questions Answered
A loan against shares is a secured financing facility where investors pledge their eligible securities as collateral with a lender to obtain liquidity without needing to sell their long-term holdings. Under this arrangement, the investor retains ownership of the investments while receiving funds based on a specified portion of the collateral's market value.
Applicants generally need to be Indian residents aged between 21 and 90 years who are either salaried or self-employed. Additionally, applicants must own eligible listed shares that are free from encumbrances, though specific criteria can vary between different lenders.
Because the collateral is tied to the stock market, share price volatility presents a major risk if market conditions decline. If the value of the pledged securities drops, the lender may issue a margin call requiring additional cash or securities, and failure to act can lead to the forced liquidation of the assets.
