Difference between Loan against Shares and Loan against Bonds

Explore the distinctions between loans against shares and bonds, including collateral requirements, loan-to-value ratios, interest rates, and repayment terms. Make informed decisions for your financial planning.
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3 mins
01-July-2025

Loan against shares is a type of credit available against listed shares. Here, investors borrow funds against investment portfolios in shares to meet their financial needs. On the other hand, loan against bonds enable individuals to finance their needs by pledging bonds such as treasury bills, municipal bonds, zero-coupon bonds, etc. This article provides an insight into the difference between a loan against shares and a loan against bonds.

Loan against shares

A loan against shares allows you to pledge your listed equity shares as collateral to secure a line of credit or term loan. Instead of liquidating your investments, you can retain ownership and still meet urgent financial needs. The loan is typically offered against shares from the lender’s approved list.

Benefits of loan against shares

Pledging shares for a loan offers multiple benefits that make it a smart choice for short-term liquidity:

  • No need to sell shares: You can access funds without disturbing your portfolio.

  • Quick processing: Loans are approved and disbursed quickly with minimal documentation.

  • Continue earning returns: You remain eligible to receive dividends and capital gains.

  • Flexible usage: Funds can be used for personal or business needs, including emergencies.

  • Lower interest rates: Secured nature of the loan often results in better interest rates than unsecured loans.

  • Simple top-up options: Easy to enhance your loan amount if your portfolio value increases.

This facility is ideal for investors looking to monetise their shareholdings without affecting long-term gains.

Loan Against Shares
Loan Against Mutual Funds

Loan against bonds

A loan against bonds allows you to use government or corporate bonds as collateral to avail funds. The bonds must be from the lender’s approved list. It’s a secure, low-risk financing option for individuals who want to retain their investments while gaining immediate liquidity.

Benefits of loan against bonds

  • Taking a loan against bonds comes with several advantages, especially for conservative investors seeking secure funding:

  • Capital preservation: You retain your bond investments while accessing funds.

  • Stable collateral: Bonds offer low-risk security, which enhances loan approval chances.

  • Quick processing: Minimal paperwork and fast disbursal make it ideal for urgent needs.

  • Tax efficiency: Interest paid on loans against certain bonds may offer tax benefits.

  • Lower interest rates: Due to the secured nature of the loan, rates are generally lower.

  • Flexibility in usage: Funds can be used for any purpose personal, professional, or emergency.

Overall, it is a prudent option for those with fixed-income instruments seeking short-term liquidity without selling their holdings.

How are a loan against shares and a loan against bonds different?

While both loans allow you to unlock liquidity by pledging your investments, there are a few key differences between a loan against shares and a loan against bonds. These differences lie in the eligibility criteria, risk profile, loan approval timelines, and investment stability. Below is a comparison to help you understand which option may better suit your financial needs:

Feature

Loan Against Shares

Loan Against Bonds

Collateral type

Listed equity shares from approved companies

Government or corporate bonds from approved list

Risk level

Higher market volatility and price fluctuation

Relatively stable and low-risk

Loan approval time

May take slightly longer due to market risk assessment

Faster approval due to bond stability

Eligibility requirements

Demat account with approved shares

Bonds must be listed and from approved issuers

Loan-to-Value (LTV) ratio

Up to 50% (may vary with share type and lender)

Up to 95% in some cases due to higher security stability

Returns on investment

You continue earning dividends and gains

Interest from bonds continues if not affected by pledge terms

Ideal for

Investors with equity portfolios seeking higher-value liquidity

Conservative investors looking for low-risk loan options

This comparison helps highlight how your investment type can influence both the approval process and overall loan experience.

What are the advantages of a loan against shares and a loan against bonds?

Some of the common benefits one can get from a loan against shares and a loan against bonds are discussed below:

● Secured loan: Loan against shares and loan against bonds are secured credit facilities, so borrower to collateralise their assets in bonds and shares for availing such loan facilities.
● Easy availability: Both these credit instruments are known for their convenience and easy accessibility alongside quick processing.
● Loan value: The lending institution provides a loan amount as per the value of security pledged by the borrower. Loan against securities is a type of overdraft facility wherein the sanctioned overdraft amount generally ranges between 40% and 50% of the collateralised property’s worth.
● Repayment schedule: In the case of loan against securities, it allows a more flexible schedule for repayment than other kinds of instalment -based credit facilities.
● Tenure: When it comes to loan against shares and loan against bonds, most lenders provide a tenure of one year on average, which can be extended by paying some additional charges, at the sole discretion of the lender.
● Reasonable interest rate: The rate of interest charged on loan against securities is lower than other types of loans.
● Documentation: If an individual is looking for loans with less paperwork, then choosing loan against securities will be ideal. Besides minimal documentation, these also have an easy application procedure and minimal processing charges. However, this shall be at sole discretion of each lender.
● Online application: Due to the Bajaj Finanace Limited’s online application process, anyone can easily avail of loan against securities anytime.
● Benefits and perks: Another beneficial factor that makes a loan against securities unique is that it allows individuals to avail several benefits and perks attached with securities like bonuses on investments, dividends, etc. will the securities are pledged with lenders.
● No end-use restriction: Like personal loans, applicants can utilise the credit against securities for any kind of purpose permitted by relevant law. This means that a borrower can use the credit amount to buy a house, settle an outstanding debt, tackle a medical emergency, or make any other expenditure.

While there are some differences between a loan against shares and a loan against bonds, several things are also common. However, like other types of loans, the terms and conditions for a loan against securities also vary from one lender to another. Thus, to pursue these types of loans, borrowers need to conduct thorough market research and make decisions prudently.

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Frequently asked questions

Which is better – loan against shares or bonds?

It depends on your financial goals and risk appetite. Loans against shares may offer higher loan amounts but come with market volatility. Bonds, being more stable, offer lower risk and quicker approval. Choose based on your portfolio composition and need for security vs. flexibility.

What is the loan-to-value (LTV) ratio for shares and bonds?

The LTV ratio typically ranges up to 50% for shares and up to 95% for bonds, depending on the lender. Bonds generally have a higher LTV due to their stable nature, while shares may attract a lower ratio because of market fluctuations.

Can I get a loan against both shares and bonds together?

Yes, many lenders allow you to pledge a combination of approved securities—including shares, bonds, and mutual funds—to maximise your loan eligibility. The total loan amount will be based on the combined value and individual LTV ratios of each pledged asset.

Are loans against shares or bonds risky?

Loans against securities are generally low-risk if you manage repayments well. However, shares carry market-related risks that may lead to margin calls. Bonds offer more stability, reducing risk, but both options require responsible financial planning to avoid asset liquidation.

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