Loan Against Shares: Concept, Eligibility, Documents, Process
Loan Against Shares: There are various types of loans available; it can be a loan against property, loan against jewelery, Loan against stock, but there is another kind of loan available for the common person. It is Loan against Shares.
So let us understand what is loan against shares.
Loan against shares is a loan where you pledge your shares as collateral to the Banks and/ or NBFC’s against the loan amount. These are provided as an overdraft facility against the shares deposited. Interest is paid on the amount used and only for the period, the amount is used.
To meet out the unexpected contingencies and emergencies or personal needs and instead of selling the portfolio, Banks, NBFC’s have started providing loans against the shares to the individuals.
The individual who has to avail the facility of loan against shares should fulfill the below mentioned basic conditions. The individual availing the loan:
- Should be resident of India.
- Should be at least 21 years of age.
- Shall be salaried or a self-employed individual.
- Should own the shares, which are approved by the bank, only, then the bank will be able to provide him the loan.
The individual availing the loan has to provide the following basic documents to the lendor –
- PAN Card
- Identity and Address proof
- Last Six Months bank statement
- Cancelled Cheque
- Demat Account Statement
- Income Proof
As per the recent RBI guidelines, every document submitted to the banks now requires self-attestation of the person giving them.
Additional requirement for individual who is self-employed
- Balance Sheet and Profit and Loss Account
- Proof with respect to Business and Office Address
The Reserve Bank of India, Securities and Exchange Board of India may impose such other conditions on the eligibility criteria and may demand such other documents as notified.
- The tenure of Loan against Shares is between 6 months to 12 months and it can be easily renewed by submitting the required documents like Demat Account Statement.
- The rate of interest in these cases is between 12% to 15% and varies from institution to institution.
- The loan amount depends on the shares so offered as collateral. Maximum loan that can be availed is Rs. 10 Lacs against shares in physical form and Rs. 20 Lacs against shares in demat form through banks.
- The rules for NBFC may vary from the above.
- Penal interest at high rates ranging from 1.5% to 2% are charged in case of failure to repay the loans timely.
- Even loans can be availed against Mutual Funds (LAMF – Loans Against Mutual Funds). The procedure is quite similar as that of Loan Against Shares. In this case, you can pledge mutual fund investments online and get an overdraft limit set in your account. You can enjoy the benefits of instant availability of funds, retention of mutual fund returns without liquidation, and more such facilities and benefits.
These days’ loans against shares can be availed in paperless ways by completing the required digital process.
Banks like HDFC, ICICI, Tata Capital, etc. are providing this facility on their portals.