5 Important Things to Know Before You Apply for a Loan Against Securities
Ever needed money but didn’t want to sell your investments? A Loan Against Securities (LAS) might be the answer. It lets you borrow money by using your shares, mutual funds, or bonds as collateral—without selling them. This means you can meet your financial needs while still keeping your investments intact. But before you apply, here are 5 important things you should know.
What is a Loan Against Securities (LAS)?
A Loan Against Securities (LAS) allows you to borrow money by pledging the investments in your demat account. These could be:
- Shares/stocks
- Mutual funds
- Bonds
- Other approved financial instruments
When you pledge your investments, the lender puts a lien on them, which means you can’t sell or transfer them until the loan is repaid. The amount you can borrow depends on the Loan-to-Value (LTV) ratio, which is the percentage of your investment’s market value that the lender is willing to loan you. The good news? You still earn dividends and interest on your investments while the loan is active.
5 Things to Know Before Applying for LAS:
1. Eligibility:
To get a loan against securities, you must:
- Be an Indian citizen
- Be between 18 and 70 years old
- Have a valid PAN card
Different lenders may have slightly different criteria, so always check beforehand.
2. Loan Amount & LTV Ratio:
The loan amount depends on the market value of your securities. Each type of security has a different LTV ratio. For example, shares might have an LTV of 50–65%, meaning if your stocks are worth ₹10 lakh, you may get a loan of up to ₹6.5 lakh.
3. Loan Tenure:
The duration of the loan varies by lender. Some offer flexible options where you only pay interest every month, and the principal at the end of the loan term.
4. Interest Rates & Charges:
Always check:
- Interest rate (varies by lender and security type)
- Processing fees
- Hidden charges
Make sure you understand the total cost of borrowing before signing up.
5. Repayment & Risks:
If the value of your pledged investments drops, the lender may ask for additional collateral or part repayment to maintain the LTV ratio. If you can’t provide it, your investments may be sold (liquidated) to recover the loan. That’s why it’s important to have a solid repayment plan in place.
Loan Against Securities vs. Selling Investments:
Wondering whether to sell your investments or take a loan?
- Selling might lead to taxes and loss of potential future gains.
- Taking a loan lets you keep ownership and still use the funds.
If you have a proper repayment strategy, LAS is a smart way to handle short-term financial needs without breaking long-term wealth-building plans.
In Summary:
A Loan Against Securities helps you unlock money from your investments without selling them. You keep earning on them while using them to meet your needs. It’s flexible, fast, and doesn’t disturb your financial goals—if you manage it wisely. So, if you’re short on cash but want to protect your investments, LAS could be a smart choice. Just remember to check eligibility, interest rates, risks, and always have a clear plan for repayment.
Frequently Asked Questions:
LAS stands for Loan Against Securities. It’s a secured loan where you use your shares, mutual funds, or bonds as collateral.
When you need funds temporarily but don’t want to sell your shares or incur taxes.
You may have to give more collateral or repay some of the loan. If you can’t, the lender may sell your shares.
Type and value of securities, credit score, LTV ratio, repayment history, and lender’s policies.
- Market value may fall
- Margin calls
- High interest rates
- Possibility of your assets being sold
- Short loan tenure
- Quick access to money
- Lower interest than unsecured loans
- You keep your investments
- Flexible repayment
- Some lenders offer no prepayment charges
- Borrowing too much
- Ignoring market risks
- Not comparing lenders
- Misunderstanding margin calls
- Using risky/volatile securities
Disclaimer:
This article is for educational purposes only. It is not financial advice or a product recommendation.
