Things To Know Before Getting Loan Against Securities In India

There are many types of loan available for your need. You can opt for loan against property, securities, shares, etc. in India. But you need to judge these loans and go through papers and agreement before opting one. But before opting for any type of loan, you need to compare the options and choose the best one that suits you.

Many times, people opt for personal loans from banks and financial institutes but remain unaware of other types of loans. One of these is loan against securities, shares, mutual funds and other financial instruments. In India, many banks, PSUs and other institutions offer these loans in the market. The rate of interest many vary from 12% to 15% depending on the lender.

The method to find out the best loan option is to find the reason and purpose for the loan, cost and time period of the loan amount and lastly mode of loan. Many experts feel that loan against securities and shares have its own advantages and disadvantages.

The interest on loan against security is charged only on utilization of limits sanctioned and only for the number of days it is utilized. This can be used for various reasons like buying a property, personal expenses, marriage, studies and other requirements. One of the cautions that people taking these loans should take not to invest it back to the market. This can be risky factor.

As per guidelines of Reserve Bank of India, a borrower can’t be given more than Rs. 20 lakhs against shares and equity mutual funds depending on value of security used for loan. Also, drawing power of a loan amount depend upon liquidity. For example, debt securities can grant you 80% drawing power.

One of the drawbacks that loan against securities has is market crash. Before borrowing the loan, you should be able to fund the loan account or you should have additional securities. Hence it is advised to borrow a loan amount depending on the ability to repay.

After borrowing the loan, if you want to revise the portfolio and upgrade it, the lender can grant your request depending on terms and conditions of the bank or lending institute.

Before borrowing the loan, you should know the financial instrument that you are using for loan. Banks and lending institutes has list of approved securities against which they offer loan. This may get revised regularly depending on lender and policy and rules in India. In general, almost all lenders offer loan against equity shares, mutual fund units (equity, debt, FMPs), government relief bonds, policies issued by LIC etc. You should check the list before you opt for this option.

If you are looking for short term loan, then loan against securities and shares is viable option provided that you check the amount utilized.