Emergencies that require a free flow of cash may often come without a warning. Whether it is a medical emergency, urgent home repairs, working capital requirements or unexpected bills, such financial emergencies can leave individuals in a tough situation. Having the right financial resource can help you navigate through such difficult situations with ease. Leveraging emergency liquid savings, taking a personal loan, and breaking FDs are the commonly practiced options for acquiring funds. A better option to consider availing a loan against shares for your emergency fund requirements, which can provide you with the necessary funds while leveraging your existing investments in shares. This borrowing method enables you to continue earning dividends on your shares as you keep them as collateral while availing of a loan against shares.
A loan against shares is a type of loan where you pledge your equity shares as collateral and borrow funds against them. These equity shares act as a security for the lender. The loan amount that may be approved by the lender against the security of shares is determined based on the value of the pledged shares. Loan against shares may be availed from multiple lenders. The loan amount approved by a lender is typically a percentage of the market value of the shares. As per RBI Master Direction, you may be sanctioned a loan up to 50% of your portfolio value by Bajaj Finance Limited. However, any shortfall in the maintenance of 50% loan-to-value ratio due to share price movements shall be adjusted within 7 working days. Availing loan against shares for emergency fund requirements is one of the easiest ways to meet required financing without liquidating investments or borrowing at extremely high-interest rates.
Benefits of Loan Against Shares
Read on to know more about the advantages of loans against shares for emergency expenses:
1. Easy to apply
Unlike traditional loans that may require extensive paperwork, credit checks, and lengthy approval processes, a loan against shares can be processed quickly, often within a few days. This can be particularly beneficial in financial emergencies where you need access to funds urgently. With Bajaj Finance Limited, subject to terms and conditions stipulated by Bajaj Finance Limited, one may easily get a pre-approved loan against shares of up to Rs. 5 crores by submission of minimum documents. Your loan account may be managed online hassle-free manner.
2. Do not sell but leverage your shares
To get the required financing you need not sell your shares, just leverage them. This means that you can continue to get dividends and other benefits attached to your investments in shares while still having an option of availing funds against your investments in shares. With a loan against shares, you can avoid the need to liquidate your investments and retain your investment portfolio intact.
3. Flexibility
A loan against shares provides flexibility in terms of usage. The funds received through a loan against shares can be used for multiple purposes, such as paying medical bills, funding educational expenses, meeting business requirements, home renovations, or meeting any other emergency expenses. There are no restrictions on the usage of the funds available through a loan against shares, thus providing you with the freedom to use the funds as per your requirements. Also, you need to pay interest only on the loan utilised amount of the loan.
4. Lower interest rates
Traditional borrowing instruments like personal loans and loan against credit card usually levy higher interest rates, but a loan against shares interest rates are typically competitive. Since the loan is secured by pledging of shares in favour of the lender, the lender is at lower risk, which in turn results in lower interest rates. This can make a loan against shares a cost-effective option for emergency funds compared to other forms of borrowings that may come with higher interest rates.
Considering a loan against shares as an option to meet emergency fund requirements can be a good option for those who hold investments in valuable equity shares and need quick access to funds without having to sell their investments or disturbing their portfolio. It can provide the necessary liquidity while retaining the potential for future appreciation in the value of their investments in shares. While opting for a loan against shares it is advisable to explore and compare the benefits offered by different lenders for securing the best deals and also compare pre-payment charges, processing fees, etc. charges by different lenders. Subject to terms and conditions stipulated by Bajaj Finance Limited, you may get a pre-approved loan against shares for up to Rs. 5 crores.
In conclusion, a loan against shares as an emergency fund can be a preferred option. With planning and due diligence, a loan against shares can be a useful tool for managing unexpected financial emergencies and for securing the funds you need.
