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Everything You Need to Know About How Loan Against Shares Works

20 Jan 2023 0 COMMENT

Loan against shares or securities is a great option for those looking to secure a loan against the value of their investments. With this type of loan, you can borrow against the value of your shares and use the funds for a variety of purposes. Let’s explore the basic features of a loan against shares and how loan against shares works.

So instead of selling your stocks in time of need, you can simply pledge them.

What is a Loan against Shares?

Usually, when you apply for a loan, most banks and financial institutions ask you to pledge an asset as collateral. Such collateral serves as an assurance to the lender and gives them something to fall back on in case you cannot repay the borrowed amount. When you apply for a loan against securities, you use your already-purchased shares as collateral for availing the loan amount.  The loan term is generally 1 year and has a facility of renewal.

How Does a Loan Against Shares Work?

As mentioned above, the key elements of a loan against shares are that you pledge your stocks as security to get a loan.  The loan is credited to your OD account.

When you opt for an overdraft facility, the lender will extend a limit from which you can borrow. You can withdraw money from that limit as and when required and you will be charged interest only on that amount.

The amount that is extended to you will depend on the current value of the shares you pledge. Usually, most institutions accept both debt-based and equity-based financial securities as collateral. Do note that if you are pledging equity shares, you might have to check if your shares align with the list of shares the lender accepts.  Largely there are 700 to 800 stocks which are eligible for availaing Loan against shares.

Lastly, while you have pledged your shares as collateral for the loan, you cannot sell or redeem them. However, they will remain in your account and stay actively invested in the market. Thus, you will be able to receive any dividends, etc. Once you repay the entire loan amount you will be able to fully reclaim authority over the shares.

The process of Loan against Shares can be done in 2 ways :

  1. Digital or Online Journey:  This is a complete online process for eligible set of customers. Hence there is no need to visit any branch physically or submit any documents.  The process is completed through a digital journey and you get instant credit of funds.
  2. Offline process: Here you will have to submit few documents to process your loan application. This process can take upto 10 days for loan disbursal

Overall, loans against shares offer a convenient and efficient source of short-term financing. For those looking to fund a commercial endeavor or to secure cash quickly for personal needs, leveraging assets already owned through loans against shares offers a viable solution.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.