Features of Loan Against Shares
- Loan against shares is issued against securities listed on a stock exchange.
- The loan is fully secured by the pledged security.
- If the borrower defaults, the lender may sell the shares or securities to recover the dues.
- Loan against securities gives peace of mind to the lender due to the safety of collateral.
- Government, corporate, and debenture securities that trade on stock exchanges are eligible for loan against stock.
Eligibility Criteria for Loan Against Shares
- Traders
- Industrialists
- Businessmen
How to Get a Loan Against Shares
Securities of publicly traded companies can be pledged to get a loan against shares. Investors can use their current investment portfolio to raise funds and fulfill their liquidity needs without selling their shares. With loan against stock, the invested capital remains untouched while liquidity is maintained.
This approach is popular because it supports both short-term and long-term borrowing. Every lender has an approved list of securities eligible for a loan against securities, which may include equity shares, bonds, mutual funds, and insurance policies. These secured loans ensure the lender does not incur a loss in case of default.
Stock Exchange Securities Used for Loan Against Securities
- Government securities issued by the Central and State Governments.
- Debentures and bonds from semi-government organizations.
- Shares and debt obligations of joint stock corporations.
Advantages of Offering Shares as Security
- Loan against shares is easily realizable if the borrower defaults.
- Although stable, the value of shares may vary during market fluctuations.
- Transfer of shares for loan against securities is simple and has minimal formalities.
- The market value of shares is easy to determine.
- Share warrants, bearer bonds, debentures, and promissory notes are fully negotiable.
Overdraft Facility on Loan Against Shares
Loan against shares or loan against securities is often provided in the form of an overdraft facility. This facility allows you to obtain liquidity without selling your investment holdings. The overdraft limit is determined based on the value of pledged securities such as equity shares, mutual funds, bonds, and insurance.
By pledging these instruments, you can continue to earn returns while utilizing the benefits of a loan against stock. It’s a smart and flexible financing solution for investors and business owners who require funds without liquidating their portfolio.