When urgent funds are needed, selling your investments might seem like the only option. But what if you could access money without giving up your valuable assets? This is where a Loan Against Securities (LAS) becomes a smart choice
Let’s break down what is Loan Against Securities & how it works, and why it might be the right choice for you.
What is Loan Against Securities?
A Loan Against Securities allows you to borrow funds by pledging your financial assets such as shares, mutual funds, bonds, or insurance policies as collateral with a bank or financial institution. Instead of selling your investments, you can secure a loan while still enjoying benefits like dividends or interest on your assets.
How Does Loan Against Securities Work?
Here’s how the process typically works:
- Pledge of Securities: You approach a bank or NBFC and pledge your eligible securities.
- Loan Limit Determination: The lender evaluates your portfolio and offers a loan amount based on a percentage of the current market value of the securities (usually 50%–80%).
- Loan Disbursement: The approved amount is credited to your account—often as an overdraft facility or term loan.
- Ongoing Monitoring: The lender monitors the value of your securities, and you may need to provide additional collateral if their value falls.
- Repayment: You repay the loan along with applicable interest, and once fully paid, your securities are released.
Eligible Securities for LAS
Commonly accepted securities include:
- Equity shares
- Mutual funds (debt and equity)
- Bonds and debentures
- Insurance policies (with surrender value)
- Government securities
Key Benefits of Loan Against Securities
- Quick Access to Funds: Faster processing compared to personal loans.
- No Need to Sell Investments: You retain ownership of your assets.
- Flexible Repayment Options: Overdraft and term loan facilities are available.
- Lower Interest Rates: Usually lower than unsecured loans.
Things to Keep in Mind
- If the market value of your securities falls, you may face a margin call and be required to pledge more assets or repay part of the loan.
- Only listed or approved securities are accepted.
- There may be processing fees and other charges involved.
Conclusion
Now that you understand what Loan Against Securities is, it’s clear that this facility can be a smart and efficient way to meet short-term financial needs without losing long-term investment benefits. It’s ideal for investors looking for liquidity without disturbing their portfolio.
