What is loan against share and how to get it?

It is now simpler and more socially acceptable than ever before to obtain a loan, whether the purpose is to satisfy immediate financial obligations or to accomplish particular immediate or long-term objectives. However, because there is such a high demand for loans, the interest rates that are attached to them have skyrocketed, rendering them inaccessible and unaffordable to a huge number of people. Also, they sometimes need valuable items or real estate as security, which makes them a risky alternative.

Taking out a loan against the shares held in your Demat account is an option worth considering if you need money but don’t want to part with any of your physical possessions in the process.

Loan Against Shares: How Does it Work?

The process of securing a loan by using the value of your shares of stock as collateral is referred to as a loan against your shares. You can make a profit off of your investments using Demat shares to secure a loan, so you won’t have to liquidate them first. When you take out a loan against shares, you do not need to provide any security or additional securities in addition to the shares that are already in your Demat account.

Here are some of the reasons why a loan against shares is an excellent borrowing alternative:

• You have the option of taking out a loan from the same financial institution that is providing you with the Demat account service if you want. When you take out a loan from the same financial institution that manages your Demat account, the process of disbursing the loan you took out against your Demat shares is simplified and streamlined. In reality, you are just borrowing the money from the financial institution because it is pledging your shares against the money that it has received as collateral.
• You can assure this ease of disbursal by making sure to open a Demat account with a reputable financial institution that offers convenient loans against securities. This will allow you to get a loan without having to pledge any of your stocks as collateral.
• When you use your Demat shares as collateral for a loan, your shares are essentially retained as a security deposit. Even if your Demat shares are used as collateral for the loan, you will still be eligible for all of the benefits associated with stock investments. This entails receiving and retaining not only profits but also bonuses and rights that are legally yours.

Eligibility Criteria for Availing a Loan Against Shares

You have to make sure that you are qualified to go through the loan process before you can take out a loan against the shares that are held in your Demat account. Here are the eligibility requirements:

• You must be between the ages of 18 and 65.
• It is only possible to pledge the ownership of shares that are registered to individual shareholders. You are not permitted to make a shared commitment on behalf of minors, HUFs, non-resident Indians, or businesses.
• In addition to that, we will require you to submit certain important papers. These can include a statement from your DP, proof of your identity, proof of your address, and proof of your income.
• You are not permitted to pledge the company’s shares if you are a director or a promoter.

Features of Loans Against Shares

The loan that you can get against the shares that are held in your Demat account comes with several unique features that set it apart from other kinds of loans. The following is a list of some of the most crucial aspects that you should be aware of:

• Your Demat shares can be pledged to obtain a loan of up to INR 20 lakhs.
• Loans against shares are frequently less expensive than personal loans, with interest rates ranging from 12 to 18% p.a.
• Guarantors are not required for loans against shares. Furthermore, there are usually no prepayment penalties.
• Every week, an evaluation of the value of the pledged shares is performed.

Things to Avoid While Availing of a Loan Against Shares

Even though taking out loans against the shares held in your Demat account might be a practical alternative, it is essential to make use of these funds in a responsible and circumspect manner.

Some investors take out loans secured by their Demat shares solely to reinvest the money they get back into the market. If, on the other hand, the market enters a bearish trend, this move could result in significant losses for you because you will still be obligated to pay the interest to the financial institution. Therefore, it is strongly suggested that you steer clear of using this tactic. Instead, it is recommended that the loan amount be used for unexpected financial needs or to quickly accomplish financial goals. These can include finances for home bills, a wedding, schooling, and money for investments in businesses, among other things.

Conclusion

You too can take advantage of the borrowing perks that come with having investments in the stock market by using your Demat shares as collateral for a loan. Finding the proper financial institution that can give you an optimal Demat account and the facility to avail of a loan against your Demat shares is the key. The key is to identify the right financial institution.