To meet financial emergencies, an individual can avail loans against shares. This type of loan is an excellent option for investors, as it enables them to meet their short-term financial needs without risking their long-term plans. Loans provided by banks often come with high interest rates and require investors to give physical possession such as their home or other property as collateral. In case of loan against shares, an investor can raise finance by taking advantage of his already purchased and invested shares. By doing so, investors can monetize their market investments and get the most out of them.
How to get this loan
If you are an investor, the best option to avail this loan is to take it from the same bank in which you have a demat account. By doing so, the process of using your loan against your shares becomes easy and relatively hassle-free. Even if your shares are leveraged against debt, you will continue to profit from your market investments.
Eligibility for Loan Against Shares
The most important criterion to avail this type of loan is to have a demat account with any financial institution. You can pledge as leverage only those shares that have been bought and invested in your name. Shares in the name of any other person or organization cannot be pledged as collateral. You cannot pledge the shares of any company to which you are associated at the executive level. In order to pledge your shares as collateral, you will need to submit a list of required documents such as identity proof, proof of income as well as proof of residence.
Features of Loan Against Shares
Notes This type of loan is offered as a financial instrument that provides you with an approved credit limit based on the value of the shares pledged by you. Hence, as a borrower, you are free to either withdraw the entire sanctioned amount or take a part of it depending on your financial requirements at that time. Since the stock market is volatile, the lending institution undertakes periodic revaluation of the pledged shares. If market prices change and the credit amount accepted exceeds the leveraged shares, you will either have to pay the difference in cash or check or may have to pledge more shares to cover the difference in amount.