Read useful information regarding loan against shares

Loan Against Shares

The main purpose of taking loans against shares is to preserve investment, apart from taking care of personal needs. People also resort to such a loan to meet their contingencies and get liquidity without actually selling the shares. It is advisable to take loan against equity (shares & debentures) only when you are expecting a certain sum of money a few months down the line and you need some funds in the interim. If you are reinvesting the loan amount, ensure that the benefits you derive are more than the cost you have to incur (which includes interest and processing fee). Carefully consider the risk involved in such a move.

Loan against shares is available in the form of an overdraft facility against the pledge of financial securities like shares/units/bonds. After you submit the loan application with all the share certificates and other relevant documents, a current account is opened in your name. You can then withdraw up to the amount sanctioned and interest will be charged only for the number of days you use the amount. The loan amount that can be sanctioned depends on two factors: the extent of funding on a particular stock and the price (called the base price) considered by the lender for calculating the value of the shares.

The Reserve Bank of India (RBI) allows banks to lend up to 75 per cent of the value of demat shares and 50 per cent of the value of physical shares. However, banks can, and do, fix their own limits with respect to the extent of funding within that range. Generally, demat shares get you a larger loan amount, in a much faster time, at lesser rate of interest and at smaller processing fee, than those in physical form. Every lender has an approved list of securities that he lends against and this list varies from one lender to the other. There are other conditions that lenders apply on equity loans.
Necessary Conditions
Documents Required

Shares in Demat Form
Shares in Physical Form
General Information