Everything You Know about Loan against Securities

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Loans against securities are loans that you can get by pledging your securities with a bank. As these loans are secured loans, the rate of interest in many cases is lower than that on personal loan rates. These loans are easy loans that can be availed with minimal documentation. Loan against securities interest rates varies from 9.5-12% depending on the nature of underlying security, loan amount and loan tenure.

Loan against Securities Interest Rates

Loan Against SecuritiesDetails
Interest Rate9.5-12%
TenureUp to 1 year with the option to renew
Loan Amount as a percent of Value of SecurityUp to 85%
EligibilityIndividuals and Hindu Undivided Families (HUFs)
Eligible SecuritiesInsurance policy, shares, PPF, mutual funds, bonds, NSCs
Pre-payment ChargesNil (in most banks)
Processing FeeStarting from 0.15% of the loan amount

Loan against Security Details

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  • Secured Loans took against the security of your financial investments such as share, mutual funds, insurance policies.
  • Available to individuals within the age group of 18-65 years.
  • Loan tenure can be up to 1 year with an option to renew it annually.
  • It can opt as an overdraft facility which allows the borrower to withdraw from the account within the credit limit and deposit any surplus amount as available.
  • The loan against the Security interest rate is in the range of 9.5-12%.
  • Processing fees are as low as 0.15% of the loan amount in some banks.
  • Prepayment charges on Loan against shares are nil in most banks. However, few banks may charge some preclosure penalty.
  • All top banks such as ICICI, HDFC Bank, Axis Bank, Standard Chartered and IDBI, etc offer loans against security.

Loan against Shares

Loan against Shares are loans granted against the security of listed stock exchange shares and are a popular form of availing short or long term loans. Some of the key features of Loan against Shares are:

  • The loan amount of up to Rs. 20 lakh can be availed. Some banks offer even higher loan amounts.
  • Loan to Value Ratio can range up to 50-60% of the market value of the shares.
  • Most of the banks do not charge pre-closure and part-payment penalty, which helps in easier repayment.
  • Banks also offer an overdraft facility on Loan against Shares that can be renewed annually.

Complete Guideline Loan Against Property

Loan against Mutual Funds

Loan against Mutual Fund units can be availed for meeting short term business or personal fund requirements. The loan can be availed form leading banks or NBFCs pledging your mutual fund units. A key feature of the scheme are:

  • The loan amount as a percentage of the market value of mutual funds can range up to 60%.
  • You can get a high loan amount of up to Rs. 20 lakh or even higher.
  • Typically, banks and NBFCs allow prepayment of these loans without charging any prepayment fees.

Loan against PPF

PPF Loan is a loan taken against the security of the balance in your PPF account to meet your urgent personal expenses.

  • PPF Loan Interest Rate can be availed at low-interest rates.
  • Loan on PPF account can only be taken between the third and sixth financial year of opening the PPF account.
  • The tenure of a PPF loan is generally 36 months.
  • A maximum of 25% of the PPF account balance at the end of the preceding year prior to the loan application year can be availed as a loan.

How to take Loan against Security

Identify the security to be pledged

A comprehensive list of securities is provided by banks against which they offer a loan. The loan amount is a percentage of the market value of the security, which depends on how volatile the market value of the asset is. For example, the loan amount availed against equity shares is around 50% of its value, whereas that of bank deposits is around 85%.

Apply to the bank for a loan

Once you identify the securities you want to pledge, you should apply to the bank. The bank will conduct an assessment of the securities to evaluate your eligibility and approve your loan. Once the bank approves your Loan against Securities, it will open a current account with an overdraft facility. The borrowing limit of the current account is based on the value of collateral, in this case, financial security like equity shares, debenture, bonds, mutual funds, etc.

Borrow within your credit limit as and when required

Based on the value of your collateralized security, a limit is set on withdrawal from the current account. After this, the account holder is free to withdraw at any time through ATM and internet banking. Repayment is made by depositing into the account, whenever the account holder has surplus funds. This process makes this loan very different, simpler and more flexible from the conventional EMI based loans.

Points to Remember

  • Loans against securities are generally offered only to Indian Residents and HUFs.
  • Overdraft account maintenance charges, stamp duty, etc may be charged on the current account transactions.

Documents required for Loan against Securities

Documents required for Loan against Securities may differ by the type and nature of the underlying security. Typically, salaried borrowers need to submit the following documents:

  • PAN card
  • Identity and address proof
  • Photograph
  • Last 6 months bank statement
  • Canceled cheque
  • Demat account statement
  • Income proof

Self Employed borrowers are required to submit the following documents:

  • PAN card
  • Identity and address proof
  • Photograph
  • Last 6 months bank statement
  • Canceled cheque
  • Demat account statement
  • Income proof
  • Balance sheet and profit and loss account
  • Office address proof and the existence of business proof

NOTE: List of the required documents might change, depending on the security. For example, for taking a loan against LIC Policy, income proofs are not required. Similarly, Demat account statements are only required in case of taking Loan Against Shares and Loan Against Mutual Funds.

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