Loan Against Securities
A loan against securities (LAS) is a secured loan where borrowers pledge their financial assets such as shares, mutual funds, bonds, or other marketable securities as collateral. This type of loan enables individuals to access funds without liquidating their investments, allowing them to meet short-term financial needs while continuing to benefit from potential market gains.
Key Features:
1. Loan Amount:
The loan amount is typically a percentage of the market value of the pledged securities, generally ranging from 50% to 80%, depending on the type of securities and the lender's policies.
2. Interest Rates:
Interest rates on LAS are usually lower than those on unsecured loans, often ranging between 9% to 15% per annum. Rates can vary based on the type and volatility of the pledged securities.
3. Tenure:
The repayment tenure for LAS can vary from a few months to a few years, offering flexibility based on the borrower's requirements and the lender's terms.
4. Eligibility:
LAS is available to both individuals and businesses. The primary eligibility criteria include holding eligible securities, maintaining a good credit score, and meeting the lender's specific conditions.
5. Documentation:
Required documents include proof of identity, proof of residence, financial statements, and details of the securities being pledged.
6. Usage:
The funds obtained through LAS can be used for various purposes, such as business expansion, meeting personal expenses, funding investments, or handling emergencies.
Advantages:
Quick Processing:
Since the loan is secured against liquid assets, approval and disbursement can be quicker compared to other types of loans.
Retain Ownership:
Borrowers retain ownership of their securities and can benefit from any potential appreciation and dividends.
Lower Interest Rates:
Due to the secured nature of the loan, the interest rates are generally lower than those of unsecured loans.
Risks:
Market Risk:
The value of the pledged securities can fluctuate with market conditions, potentially affecting the loan-to-value ratio.
Margin Calls:
If the value of the securities falls significantly, the borrower might need to provide additional collateral or repay a part of the loan.
Foreclosure Risk:
In case of default, the lender can sell the pledged securities to recover the loan amount.
Loan against securities is a viable option for those looking to unlock the value of their investments without selling them. However, borrowers should be aware of market risks and ensure they have the capacity to meet margin calls and repay the loan on time to avoid liquidation of their assets.