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Loan Against Security In India

Everyone once in a life has to face financial crunches. Sometimes, you may also be puzzled with the fact how to tackle the unforeseen situation. At that time, you may be thinking of borrowing money you’re your friends and family, selling or pledging some of your assets. But, there is another easier way to handle the situation. If you have ever invested in shares, securities, mutual funds, insurance, stocks, or bonds then you can keep these assets as collateral to the bank or non- banking financial companies and get a loan against securities without selling your investment you can easily get the instant money.

Everyone wants to be rich in seconds and this could be possible, but this doesn’t come easy. And to make things possible, people make quick investment in share market and security trading. Although we know that life is extremely unpredictable, so what if an emergency lands while you had put all your surplus income into an investment scheme? What to do next to overcome the unseen financial crunch? Well, the answer is loan against securities. Wondering what this is all about? Let’s take a closer glimpse to get an understanding about the term.

Loan against securities is a loan given by banks and financial institutions against shares, mutual funds, insurance policies and more. It is one of the safest and secured financing option which helps to liquefy fixed assets without having to break or withdrawing them.

What is loan against securities?

Any loan or sum borrowed against securities such as shares, bonds, and mutual funds is termed as loan against securities and is somewhat similar to standard term loan with the underlying security mortgaged to guarantee the loan. This is a great financing tool that avails monetary assistance while investing. This is probably safer than opting for personal or other types of loan. This loan against securities is the best way to make your investment instruments work harder and stronger for better financial management.

Over the last few years, the stock market landscape has changed drastically. The younger generation is much aware of importance of financial management; and this has resulted in an increase in the stock market investment. Nowadays, people are looking forward to quick money making schemes and what could be better than investing in stock exchange market. From providing high returns in shorter tenure to ample of investment instrument options, the trade market is a host of monetary benefits.

As the sector is mounting, several banks and non-banking financial institutions have came forward with affordable loan against securities schemes at competitive rate of interest. Since it is a secured loan, the borrower doesn’t need to arrange security or collateral against the loan as the proposed securities (mutual funds, bonds, FD, and shares) only act as collateral against the loan.

Why one should go with loan against securities?

Higher loan amount :- you can avail loan against securities up to Rs. 10 crores to meet the personal and financial needs depending on the form of securities. In this way, submit a security of higher worth and you can borrow a bigger sum

Affordable interest rate :– Generally, loan against securities is offered at attractive rates ranges from 12- 15%. This rate varies from lender to lender and based on the actual utilization of the amount.

No addition charges :- In order to make the repayment of the loan hassle free and make it burden free on your pocket, no extra charges on part-payment and foreclosure is charged by the lenders. It means you need not to pay any additional charges other than the principal amount and interest and the processing fee up to 2% of the loan amount.

Online access :– One can easily apply for the loan online, by simply filling up an e-form to avail the loan and access the online account from anywhere, at any time and track all loan related details from the click of a button.

Loan against securities can be availed against pledge of:

  • Equity Shares – Dematerialize Shares upto 50% of the market value
  • Mutual Funds units - Mutual Funds upto 50 % of NAV (Net Asset Value)
  • RBI Bonds (8% Saving Bonds 2003 (Taxable) (Margin 5% of Face value every unexpired year)
  • Life Insurance Policies (Margin 15 % of surrender value)
  • National Saving Certificate (NSC) (Margin 20% of accrued value)
  • Kisan Vikas Patra (KVP) (Margin 20 % of accrued value)
  • Types of Loan Against Securities

    Loan Against Shares:   It is provided against shares include stock exchange securities. Loan against shares is short to medium term loan. One can avail loan amount of up to Rs. 20 Lakhs. Some banks offer even higher loan amount and also offer an overdraft facility on Loan against Shares that can be renewed annually.

    Loan Against Mutual Funds:   One can avail the loan against mutual funds to meet the short term business or personal fund requirements. The value of loan amount is 60% of market value of mutual funds.

    Loan Against PPF :   One of the most beneficial factors about the PPF (Public Provident Fund) account is that one can easily apply for the loan against the balance in the account. Account holders can avail this loan facility between the third and sixth financial year of opening the PPF account. The interest rate offered on the loan is very competitive.

    Loan Against Life Insurance Policy:   Loans against life insurance policy are a loan against life insurance plan. The interest rate charged on loan is based on the premium already paid and the number of premiums that have been paid.

    Banks and Institutions Offering Loan Against Property and their Interest Rates

    Banks/NBFCs Interest rate Processing Fee
    Axis Bank 11.35% onwards 1% or Rs 10,000 (whichever is higher)
    HDFC Ltd. 9.90% onwards Maximum 1% of Loan Amount
    IIFL 12.50% onwards Upto 1.5%* of the loan amount
    Federal Bank 11.85% onwards 0.5% of the loan amount
    Syndicate Bank 11.50% onwards  0.5 % of the loan amount – Minimum ₹ 500/-+GST
    State Bank of India (SBI) 10.30% onwards 1% of the loan amount plus GST, maximum of Rs. 50,000/- plus GST
    Kotak Mahindra Bank 9.80% onwards Maximum 3% of the loan amount Plus GST
    ICICI Bank 9.80% onwards 1.00 % + Applicable Taxes
    Indiabulls Housing Finance Ltd. 11.50 % onwards 1%of Loan Amount
    LIC Housing Finance Ltd. 11.30% onwards 1.00% of Loan Amount + Service Tax, as applicable.
    PNB Housing Finance Ltd. 10.50% onwards Rs 10000 for salaried / 0.50% for self employed
    HSBC Bank 9.80% onwards 1% of the loan amount or ₹10,000, whichever is higher
    Canara Bank 11.70% onwards 1% of loan amount with a minimum of Rs.5000/- and maximum of Rs. 50,000/-.

    When should you apply for a loan against securities?

    As loan against securities is gaining population among the masses, meanwhile it is important to keep certain things in mind. For instance, what is the right time to apply for such loan or credit?

    Falling into an emergency financial need is no surprise and while trading, even an active stock market investor can fall short of finances to meet urgent monetary needs. Here, loan against securities can definitely come to the rescue, but it is important to gauge the perfect time to apply for the loan; otherwise, you might end up making losses on both ends.

    Trade market experts believe that the borrowers might end up making a certain percentage of loss if not being aware of the right time to apply for the loan. Thus, to make the right financial decision, it is important to zero down the things at the right moment.

    Things to keep in mind when opting for a loan against securities:

    Well, as the demand of this loan is increasing, financial market has become active and several banks and financial institutions have introduced their credit schemes to woo the borrowers. So, as the competition increases, there are things to be kept in mind while opting for loan against securities.

    Rate of interest – This is one of the most prominent factors to consider when opting for a loan or credit. As this is a secured loan, the rate of interest is comparatively lower than unsecure loan, still it is essential to go for a lower ROI.

    Loan quantum – Usually the loan sanctioned against the property or security would be 40 to 70% of the proposed security’s market value. So, before opting for the loan, make sure that the sanctioned amount is enough to meet the need and you’ll be able to repay the borrowed sum. Remember, in case of default payments, your collateral property or security will be ceased by the lender to recover the sanctioned amount.

    Loan tenure – Tenure is the duration for which the loan is borrowed and should be repaid within a given time frame. Borrowers have the choice to opt for tenure maximum up to 15 years. Longer tenure can definitely translate into lower EMIs, but enables additional burden as loan interest. Longer the tenure, higher the interest paid on the loan. Hence, it is advised to choose the tenure precisely or else you’ll end up making a costly borrowing.

    Fees and charges – Just like any other loan, lenders charge certain fees from the applicant such as processing fee and prepayment charges. Though the processing charges may vary from lender to lender that generally ranges from 1 to 2% of the loan amount.

    Processing time – Some lenders might take longer time to approve and disburse the loan amount as the collateral security is first evaluated by the lenders to determine its market value and then sanction the amount accordingly. The lender closely assesses the value of applicant’s property and approves maximum up to 70% of the property’s market value. Apart from this, the applicant’s repayment capacity is also evaluated. All this process takes time and thus, opt for a loan against securities only when you’re in no hurry and can wait at least for a week to get the amount credited to your bank account.