7 Must Know Things For A Loan Against Shares

  Author: Naveen Kumar

An emergency at home or any other urgent need for cash can have you scampering around. In such situations one source of funds can be a loan against shares. But why loan against shares?

You can go for such a loan instead of making a premature exit from shares which could lead to losses due to unfavourable market conditions. Or, you may end up surrendering hard-earned gains from long term investing for future needs like children’s higher education and your retirement. Loans against shares are also cheaper than credit card debt or personal loans. But you need to keep seven things in mind while going for loans against shares.

·      It is offered both in the form of term loan or an overdraft

·      Loan amount could range from Rs 50,000 to Rs 20 lakh

·      Loans are offered only against a pre-approved list of shares by the bank. Each bank has a different list. Typically the list contains top 500 to 700 shares.

·      Loan amount would not be more than 50 per cent of the value of the shares at the prevailing market price.

·      The loan is available only against shares which are in the demat form.

·      Lien would be marked electronically which will prevent you from selling the shares unless lien is removed on loan repayment.

·      The interest rate on such a loan is typically higher than auto loans but and less than personal loans

Investing in shares is one of the best ways to achieve long term growth on your investments. Also, you can take a loan against shares to meet emergency cash requirements.  Knowing some of the salient features of loans against shares will help you decide whether such a loan is suitable to meet your urgent cash requirements.

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