Did you know that assets like, Mutual Funds, NSC certificates, and term deposits can be used as collateral when applying for a Loan? If you didn’t already know this, then this article is just the thing for you. We’re going to tell you everything you need to know about taking a loan against your securities. Let’s begin with an explanation of what it means to take a loan against securities.

What does this mean?

Often, there are trying times in one’s life which calls for financial assistance. Loans from financial institutions come to the rescue. There are many types of loans that any financial institution offers, the borrower should try to look out for favorable terms and should assess the suitability prior to taking the required assistance. If the individual or applicant has investments, then there is the option of taking a loan against such investments or securities.Loan against securities is typically for short term and the quantum of loan is low. Loan against securities is secured loans wherein the securities are the collateral. These loans can be used for a variety of requirements – vacation, travel, medical emergencies, education, etc. In simple words, a Loan against Securities is a type of loan where securities like shares, Mutual Funds, term deposits, NSC certificates, etc. are used as collateral. While some banks might require your securities to be liquidated, others give you the option of taking a loan without liquidating your investments. A loan taken against securities can range from Rs. 1 Lakh to Rs.10 crores depending on the form of securities. You also have the option to get additional finance by putting up more shares, Mutual Funds, or securities as collateral.

The list of securities which are eligible for the loan are –

• Insurance policies
• Fixed deposits
• Mutual fund units
• Demat shares

• Loan against security is a secured loan. Debentures, shares, bonds or mutual funds are offered as collateral.
• The tenure of the loan against security is one year, but it can be easily renewed.
• The rate of interest usually ranges from 12 – 15%. The rate varies from bank to bank.
• The processing fee is usually charged at the rate of 2% of the loan amount.
• The loan amount depends on the security the borrower is offering.
• The no charges for prepayment of the loan.
• The borrower is required to be within the age bracket of 18 – 65 years to apply for a loan against security.
• The loan has to be repaid within the fixed period. If the borrower fails to make the payment, the lender can file a case for recovery and the balance amount has to be repaid within 3 years from the date of sanction of the loan.

• The value of the security should be stable and steady and not fluctuate widely.
• The security must be easily transferable. Immovable property is not easily transferable.
• The security must be easily marketable.
• The security must be free from disabilities.

• The loan value is always lower than the cash value of the investment, in the event of cash value closing in on the outstanding loan value, the lender may request for additional security or liquidate the collateral and close the outstanding loan
• Loan value can be anywhere between 50% – 90% of the underlying collateral (50% for equity shares and 90% for bank deposits, insurance policy surrender value)
• Eligibility of loan is not dependent on the borrower’s credit score
• Flexible repayment schedule allowed; as compared to other types of loan which follows the equated monthly installment (EMI) routine
• The interest rate is lower in the case of loan against securities since this is a secured loan
• Interest is charged on a monthly basis for the daily outstanding balance of funds being utilized and for the period it is utilized
• No pre-payment penalty is applicable to these loansMinimal documentation and low processing charges are applicable

Loan against securities are loans extended by banks and NBFCs (Non-Banking Financial Corporations). These are secured loans, wherein the securities are offered as collateral. The securities which are acceptable as collateral include shares, mutual funds, fixed deposits, insurance policies. The loan value would depend on the cash value of the securities all put together. These types of loans are offered as an overdraft facility on the securities once they are pledged with the financial institution. The funds required can be withdrawn from this overdraft facility, the interest must be paid only on the funds withdrawn and for the period for which the funds are used.

To understand this, here is an example, if the securities are worth Rs. 1 Lakh and the same is available as a loan to the prospective borrower and the borrower withdraws only Rs. 20,000 for a period of 3 months. The borrower is required to pay interest only on Rs. 20,000 for a period of 3 months only. The overdraft facility has the flexibility of repayment in the form of repayment of interest and principal or repayment of interest only with principal being set-off against collateral or set-off of entire borrowing against underlying security. The loan can also be extended in the form of a demand loan (term loan), in such cases, the financial institution could liquidate the loan after a certain period. Typically, the maximum period allowed would be 30 months.

Benefits and features of availing HDFC Bank Loan against Securities:

• Minimum loan starting at Rs.50,000
• Easy repayment process
• Transparent processing of a loan
• The interest rate charged on the loan amount used

Penal charges:

A penal charge of 18% p.a. plus tax will be levied on the amount drawn in the excess of the limit applicable.

Benefits and features of availing Bajaj Finserv Bank Loan against Securities:

• Loan amount of up to Rs.10 crore
• The relationship manager is available 24×7
• Easy documentation
• No part payment or foreclosure charges

Penal charges:

A penal charge of 2% per month will be charged.

Benefits and features of availing ICICI Bank Loan against Securities:

• A loan based on the value of your securities
• Easy withdrawal
• Loan interest will be charged on the amount used by you

Penal charges:

A penal charge of 6% plus other applicable rates will be levied on the amount drawn in the excess of the limit applicable.

Benefits and features of using TATA Capital Loan against Securities

• Overdraft facility available
• Zero foreclosure charges
• Quick processing of application form
• Security swap facility available

Penal charges:

A penal charge of 3% plus an outstanding amount per month + GST will be levied on the amount drawn in the excess of the limit applicable.

Benefits and features of availing SBI Loan against Securities:

• The loan amount starting at as low as Rs.20,000 and goes up to Rs.5 crore
• Available in 5 different schemes
• The relationship manager is available 24×7
• Easy documentation
• No part payment or foreclosure charges
• No processing fee for select schemes

Penal charges:

A penal charge will be charged at the discretion of the bank and will vary from scheme to scheme.

Benefits and features of availing Axis Bank Loan against Securities:

• Loan amount of up to 85% of the value of the securities
• Processing fee charged at the rate of 0.15% of the loan amount
• Easy documentation
• No part payment or foreclosure charges

Penal charges:

A penal charge of 2% per month will be charged.

• Check the eligibility criteria: You must ensure that you meet the eligibility criteria before applying for a loan against securities from a bank. Most lenders require the applicant to be 21 years of age in order to be eligible for loans against securities.
• Choose a bank that accepts varied investments as security: You must go for a lender that accepts various forms of investments such as mutual fund, IPO, insurance policies from partner companies, retail shares, etc.
• Choose a bank that offers a high amount of sanction on low interest: You must avail loan against securities from a bank that offers a high amount of sanction against your collateral. There are various lenders in India which offers a high loan amount at attractive interest rates depending on the securities.
• Repayment tenure: You must look to avail loan against security from a lender which offers you a flexible repayment tenure. Generally, the repayment tenure offered is between 1 year to 3 years. However, the repayment tenure chosen by you must depend on the loan amount availed by you.

• At the Indian Loan Bazaar portal, one can compare different loan against securities offers and the interest rate at which loan is offered from various banks.
• No need to visit any lending institution. The entire process is completed while sitting at home.
• The website is user-friendly and provides you with complete information regarding all the loans against securities products.
• One can compare offers and other eligibility criteria with different banks to choose the right bank for themselves.
• At Indian Loan Bazaar, interest rates and offers by the different banks are totally genuine.
• One can check loan against securities eligibility before applying for the loan against securities easily on the Indian Loan Bazaar website and can get to know whether he/she is eligible for a loan against securities or not using the loan against securities eligibility calculator? And if yes for how much loan amount.
• You can calculate the EMI of their loan against securities before availing it using a loan against securities EMI calculator.
• One can easily apply online for a loan against securities products directly through the Indian Loan Bazaar website in no time.
• Indian Loan Bazaar team will provide you end to end guidance with a dedicated customer care team for smoother processing and disbursal of your loan against securities.

If you are planning to take a Loan against Securities, you need to be aware of a few basic points which are listed below:

• A loan against securities can only be opted for by an individual and not by companies or joint business owners.
• The loan offer goes up to 50% of the market value for Mutual Funds and up to 70% of the net asset value of the Mutual Funds.
• Repayment must do via monthly installments and only includes the interest rate. The principal needs to be repaid only at the end of the term.
• You also enjoy an overdraft facility on your loan amount at a nominal rate.
• You have the flexibility to swap securities depending on the stock market’s performance.
• The loan has a one year default tenure, after which it gets extended for another year and you can extend it further as per your requirements.
• You can pre-pay your loan amount at any point of time

Banks offer loans against securities at lower interest rates and they come with an economical overdraft facility. They also come with an ATM/debit card, mobile banking and phone banking facility.

Given below are some of the eligibility criteria you will be required to fulfill to be eligible to avail loan against securities from a bank:

• Should be a resident of India
• Should be at least 21 years of age
• You should either be a salaried or a self-employed individual
• The security against which you are availing the loan should be approved by the bank.

The financial institution provides the loan to individuals above 18 years of age. The prospective borrower should hold securities in either physical or Demat form. The loan can be availed in the same name as in the securities, normally, the loan is extended in a single name.

These loans are typically short term in nature and the quantum of loan would be lower. These loans can be used to meet contingencies and needs which are personal. Often, loans can be availed to subscribe to new public issues, investments, etc. These loans are extended as an overdraft facility and hence, it is ideal for any expense center where the exact cost cannot be determined.

• Individuals who are eligible for a Loan against Shares and Mutual Funds:
  • Resident Indians above age of 18
  • NRIs above age of 18

• Entities which are eligible for a Loan against Debt Mutual Funds:
  • Resident Indians
  • NRIs
  • HUFs
  • Sole Proprietorship
  • Partnership firm
  • Private Limited Companies

• Individuals who are eligible for a Loan against a Life Insurance Policy:
  • Resident Indians

Demat Shares

• Only Individuals can apply. [Hindu Undivided Families (HUFs), Companies, Partnerships, Sole Proprietors are specifically excluded.]
• Loans are granted only against the list of approved scripts, as determined by ICICI Bank.

Mutual Fund Units

• For Equity oriented funds – Only Individuals can apply. [Hindu Undivided Families (HUFs), Companies, Partnerships, Sole Proprietors are specifically excluded.]
• For Debt Funds/FMP/ETF – Individuals, Hindu Undivided Families (HUFs), Companies, Partnerships, and Sole Proprietors can apply.
• Loans are granted only against the list of approved Mutual Funds/ schemes, as determined by ICICI Bank.

Life Insurance Policies

• For life insurance policies, Individuals, Companies, Partnerships, Sole proprietorships, Hindu Undivided families (HUFs) can apply.
• Loans are granted only against the list of approved insurance policies, as determined by ICICI Bank.

• Resident Individuals – Self Employed / Salaried
• Age – 18 Years & above
• NRI – Non-Resident Individual – (for funding against Equity & Debt MF held in the name of the borrower)
• Non-individual entities like Proprietorship concerns / Partnership Firms/ Limited Liability Partnerships / Private Limited / Limited Companies / HUF (for funding against Debt securities)

To apply for a Loan Against Shares, you must meet the following eligibility criteria:

• You must be a resident citizen of India
• You must be at least 21 years of age
• You must be a salaried or self-employed professional with a regular source of income
• The minimum value of your securities should be Rs. 10 lakh

(a) Original Insurance Policy

(b) Deed of Assignment: Under Deed of Assignment, the benefits of life insurance policy against which the loan is taken will be assigned to the bank or insurance company. The policy will act as collateral or security until the loan is repaid. The assignment can only be executed by the policyholder and it has to be endorsed on the policy document. In short, you transfer the title of the policy until the loan is repaid. Future premiums are paid by the policyholder only.

(c) Payment Receipt for the Loan Amount: Normally, the Loan is disbursed through NEFT therefore advance receipt is required

(d) Cancelled Cheque.

• Loan Against Mutual Funds application
• Authorized identity proof
• Address proof
• Signature proof
• For private firms and proprietorships,
  • IT returns
  • Audited Balance Sheet
  • Profit and Loss account

For an Individual borrower

• Pan card
• Aadhar card
• One cancelled cheque/bank statement

For a Company borrower

• MOA / AOA
• List of Directors
• Shareholding Pattern
• Board resolution
• Pan Card & Address proof of company & director
• Cancelled Cheque/ Bank Statement

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

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

• Equity/ Demat Shares
• Non Convertible Debentures
• Mutual Fund Units
• Bonds & Government Schemes

Ans: The purpose of Loan Against Securities is to take care of all your investment as well as personal needs, and to help you meet your contingencies.

Ans: Yes, this is a unique feature of Loan Against Securities. You enjoy all the benefits of being an investor like dividend or bonus, while your shares/mutual fund units are pledged to Tata Capital Financial Services Limited for loan purposes.

Ans: No, currently we only deal with Bonds/FMPs that are selected by the company.

Ans: You can pledge your own securities, or those of your blood relative (parents, spouse, children and siblings only) above 18 years of age. If you are pledging securities that belong to anyone other than yourself, the security holder must be a signatory to the overdraft agreement as a Co-Applicant.

Ans: The loan amount ranges from ₹ 5 lacs to ₹ 20 crores. On specific approved scripts, Tata Capital may finance as single script finance based on terms and conditions being met and approved.

Ans: Yes, an e-statement can be sent to your email account.

Ans: Yes. All your shares must be in the Demat version. Mutual fund units can be in Demat or in physical form.

Ans: Yes, you can avail a loan against your shares by simply converting them into the dematerialized form through a depository account.

Ans: Yes. You can pledge shares held with any Depository Participant in National Securities Depository Limited (NSDL) or Central Depository Securities Limited (CDSL).

Ans: An overdraft account will be set up with Tata Capital Financial Services Limited. This account will have a certain drawing limit, which you can utilize as and when required. Drawing limit depends upon the quality and quantity of the shares/mutual fund units pledged by you.

Ans: The portfolio will be revalued daily. However, in case of a sharp fall in market prices, an interim revaluation may happen any time.

Ans: You will be charged a nominal processing fee. The interest will be charged only on the amount you draw and for the period that you draw it. Also, the interest will be charged on a daily basis, but will be debited to your account only once a month. Visit our Service Charges page to know more.

Ans: No. You don’t need a personal guarantor.

Ans: Yes, you can prepay your loan when you want.

Ans: Yes, you may pledge more securities to increase the drawing power of your account. It will take 2 business days for the drawing power to change. You can change the Depository Participant (“DP”) but the Sanction Limit cannot be changed.

Ans: Yes, your securities should be in the demat form. In case you cannot pledge your securities in the demat form, there are banks in India who offer you the option of pleding your securities held with any Depository Participant in NSDL or CDSL.

Ans: You should avail a loan against the insurance policy only in the case of emergency.

Ans: Some of the advantages are as follows:

• Get high loan value
• Can be availed with minimum paperwork
• Lower interest rates
• Disbursed quickly