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Loan Against Shares Guideline .pdf


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All You Need to Know about Taking Loan Against Shares
Need a personal loan, but don’t want to pay the high interest charges? No problem! You can now apply
for a loan against your shares and solve all your financial worries. Not only is this a great way of
securing a fast loan approval, but you also don’t have to sell your assets. What’s more, the higher the
value of your share and dividends, the higher loan amount will be sanctioned to you.
Another great thing about this loan variant is that you can take this loan amount for any purpose. So, if
you want to pay some huge medical bills or need to share expenses for an upcoming family wedding,
you can do so without parting with your investments.
Taking a loan against shares is a relatively new concept and most people are unaware of the nitty gritty
involved with it. If you’re among them, here’s all you need to know about this scheme.

Documents Required to Apply For A Loan Against Shares
When you’re applying for a loan against shares, you need to submit certain documents to the lending
institution. They are:









Proof of identity, such as voter ID card or passport
Photo for identification
Address Proof
Proof of income in the form of salary slips or certified financial statement
Form 16
Proof of your employment if you’re a salaried individual
Bank and demat account statements

Criteria For Getting a Loan Against Securities
Once you’ve collected all the documents that are required to secure a loan, you need to evaluate your
eligibility.
First off,















All the shares that you’re going to offer as collateral need to be under your ownership and completely
paid for.
You have to make sure that the shares that you own belong to companies, which have been deemed as
high-net worth by the lending institution.
You can ask for this list before going ahead with the loan application. Banks or NBFCs usually have this
list to ascertain that there are no risks in giving a loan against securities belonging to a particular
company.
Second,
If you’re a self-employed individual, then you cannot submit shares of your own company.
But, if your spouse or parents have shares in their names, then that can be submitted while applying
for the loan.
However, shares in the names of minors cannot be used for this purpose.
Third,
If you’ve any other loans, then you need to inform the lender about it.
Keep all your loan documents in order so that they can be procured whenever the lender asks for them.

Procedure for Taking Loan Against Shares
Once you’ve submitted the completed loan application form, the bank or lending institution will
evaluate your shares and their value in the current financial market. If you fulfil the eligibility criteria
set by the lender, then your loan will be sanctioned and an overdraft account will be opened for you.
The loan amount will be deposited in this account and you can withdraw it as per your needs using a
cheque book or an ATM card.

However, remember that all your stocks and shares will not be considered for this loan. Banks and
NBFCs have a strict monitoring policy and they take into account various parameters like market
capitalisation and volatility in share prices before sanctioning the loan.

Legalities you Need to Be Aware Of
The maximum loan amount that is sanctioned against shares is set between Rs.50,000 and Rs.20 lakh.
The RBI has set a 50 percent rule for approving loan against shares. So, if the total value of your stocks
is Rs.10 lakh, then you’re liable to get a loan amount of Rs.5 lakh only.
Share and stocks have a fluctuating value which depends on the current financial market. As a result,
lenders will be closely watching your shares too. When the market is booming and the share prices rise,

the lender will sanction a higher loan amount and it will be deposited to your account. But on the flip
side, if, at the end of a week, the share prices fall, a much lesser loan amount will be sanctioned to
you.
This can be a bit problematic because the statistics will change every week. Let’s consider the net
amount of your shares is Rs.10 lakh. So, the total loan amount that you’d get would be Rs.5 lakh. Now,
after a week, the market price of your shares dropped by 10 percent, which means the net value of
your stocks stands at Rs.9 lakh, and the loan amount would be Rs.4.5 lakh. But, the loan amount that
was deposited in your overdraft account was Rs.5 lakh and if you’ve withdrawn the entire amount, then
you need to settle a balance of Rs.50,000 with your lender.

Advantages of Getting a Loan Against Shares
There are many advantages when you’re availing such a loan. Here’s a list for you.

1. The loan against securities interest rates are typically quite low and are usually between 12 to 15
percent. Since these are secured loans, you can avail a higher amount.
2. A lot of banks and NBFCs are willing to give a fast loan approval when you’re willing to mortgage your
shares.
3. You continue to enjoy the dividends that are applicable on your shares and the lender will not utilise it
in anyway.
4. The best part is that the interest rate will only be charged on the amount of loan you’ve used and the
tenure for which it was withdrawn. So, if the total loan amount sanctioned to you was Rs.5 lakh for a
period of 1 year and you’ve used only Rs.3 lakh for 6 months and are now ready to repay it, then the
interest rate will be applicable only for the latter amount and tenure.
5. You don’t have to cite any reasons while applying for this loan. You can utilise it for any purpose be it
your child’s education or repairing your house.

Precautionary Measures You Should Take
Although there are several advantages associated with this kind of loan, it’s always better to be
completely aware of what you’re getting into. You should avail this loan only if you’re absolutely sure
that you’ll get high returns on the shares. Don’t mortgage the shares if you think that the market prices
are likely to drop.
On the other hand, even if you’re sure that the shares will have a high market value, it’s always better
to keep some extra cash ready. If the market prices happen to fall and you have to settle a balance
amount with the lender, then you can always use the extra cash. This will reduce the chances of losing
your assets to the financier.
Many Indian banks and NBFCs have attractive offers for loan against shares. But, before you go ahead
and apply for one, don’t forget to critically evaluate your financial standing and the market price of
your shares.


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