Avail secured loan against your equity investment

There are many kinds of secured loans, where you can avail loans against assets like a residential or commercial property in your name, fixed deposits etc.

Have made a significant investment in stocks with great potential? If you don’t want to redeem or liquidate them at the moment, you can avail loan against your equities by submitting the share certificate with the bank or NBFC as collateral/security.

Generally, there is no restriction on how you can use the loan amount, though some lenders (like SBI) forbid using the loan amount for equity investment or trading. Private banks like HDFC and ICICI do not permit utilizing the money to invest or market speculation.

Eligibility criteria differ from lender to lender. For instance, Federal Bank approves a loan to an Indian citizen with a demat account with any bank. But some banks only allow their own demat account holders to borrow against their stocks.

Value of the shares on the day of application is also a main criteria. For instance, Bajaj Finserv mandates a minimum share value of Rs. 25 lakhs. The applicant should be at least of age 25 and above.

The loan amount, of course, depends on the value and potential of underlying shares. In fact, most lenders follow a list of approved stocks. Example, HDFC Bank only allows specific margin ranging from 25% to 50%. But, the single scrip contribution to the overall portfolio value must not cross 65%.

One can avail 50% to 80% of the share value as loan. However, they also look into other aspects like individual credit profile, social score and other obligations of the applicant.

You can also apply for loans against equities held by your spouse or any other close family member, provided it is authorized and the equity holder is a co-borrower. The maximum loan tenure allowed is up to 36 months and the interest can vary from 9.25% to 12%.

To sum it up, investors should know about this option. However, it is better to compare every option and rates before taking a decision.