How to Pledge Securities for Loan: Step-by-Step Guide

Imagine you need urgent funds, whether for a medical emergency, a child’s education, or a business opportunity. Your first instinct might be to dip into your investments by selling them. But selling could mean missing out on future growth, paying capital gains tax, or disturbing long-term financial plans. A smarter alternative is to pledge your securities. This allows you to use the market value of your investments to access funds without liquidating them. In other words, your portfolio works as collateral while continuing to grow in your name.

Unlock the true potential of your investments with a loan against securities and access quick funds without selling them.

What does “pledge securities for loan” mean?

Pledging securities for a loan simply means offering your financial investments such as shares, and mutual funds, which are lien-marked to borrow money from a bank or non-banking financial company (NBFC). Here is how it works:

• You apply for a loan and specify the securities you want to pledge.
• The lender places a lien (charge) on these securities through your depository (for shares) or asset management company (for mutual funds).
• While pledged, you remain the legal owner. You can still earn dividends, bonuses, or interest. However, you cannot sell or redeem the pledged assets until you repay the loan.
• Once repayment is complete, the lien is removed, and full rights over the securities are restored.

This process is often referred to as a loan against securities. Because the loan is secured, the approval is quick, the interest rates are lower than unsecured loans, and the usage of funds is flexible. For example, if you hold Rs. 10 lakh worth of shares in a listed company, you may be able to pledge them and borrow around Rs. 5–7 lakh, depending on the loan-to-value (LTV) ratio offered.

Why pledge securities?

Many investors hesitate to borrow against investments because they fear losing ownership. But pledging is different from selling your securities stay intact, and you continue to benefit from potential appreciation.

Key benefits of pledging securities

• Retain ownership: Unlike selling, pledging lets you keep control of your portfolio. Any appreciation in value is still yours.
• Quick liquidity: Compared to a personal loan or business loan, disbursal is faster—often within 24–48 hours of approval.
• Lower borrowing cost: Since it is a secured loan, interest rates are typically lower than credit cards or unsecured loans.
• No restriction on use: You can use the funds for emergencies, education, travel, or business expansion without end-use limitations.
• Tax efficiency: Selling investments may attract capital gains tax. Pledging avoids that.
• Long-term goals intact: You don’t disturb your financial planning by liquidating investments.

Pledging vs selling:

Learn more about the benefits of loan against securities.

Eligible securities for pledge

Not every financial asset is eligible for pledging. Lenders accept only certain securities with stable value and clear ownership. Here is a detailed look:

For instance, if you hold mutual funds worth Rs. 8 lakh, you may be able to leverage them and borrow around Rs. 4–6 lakh, depending on the scheme type and LTV.

Pledge shares, mutual funds, or insurance policies for a loan against securities, and meet your financial needs instantly.

Step-by-step process to pledge securities

The process may sound complicated, but in practice, it’s straightforward. Here’s how to pledge securities for loan:

1. Check eligibility: Review the list of securities approved by your lender.
2. Application: Apply online or offline with your details and specify the securities you wish to pledge.
3. Documentation: Submit PAN, any one of officially valid documents (Aadhaar, Passport, Voter ID, Driving License, NREGA Job Card, Letter issued by National Population Register), bank statements, and proof of holdings.
4. Create pledge request: For shares, log in to your demat account; for mutual funds, use the AMC portal. Approve the pledge in favour of the lender.
5. Lien marking: The lender places a charge on your securities. You can still hold them but cannot sell until repayment.
6. Loan approval and disbursement: Funds are credited to your bank account, often within 24–48 hours.
7. Repayment: Make repayments as per the agreed structure (monthly interest or instalments).
8. Unpledge: On full repayment, the lien is removed, and the securities are restored to your name.

This streamlined process ensures minimal disruption to your investments while providing timely access to funds.

Although cost-effective, pledging securities involves a few charges that vary across banks and NBFCs.

• Processing fee: A one-time fee charged when the loan is approved.
• Pledge creation and release charges: Paid to the depository (for shares).
• Stamp duty: Applicable as per state regulations on the loan agreement.
• Interest rate: Depends on the type of security, loan amount, and provider.
• Penal interest: Levied for delayed or missed payments.
• Other charges: Account maintenance, foreclosure charges, penal charges, or additional service charges may apply.

Minimise costs and maximise liquidity with a loan against securities designed to suit your financial needs.

When should you pledge vs choose another option?

Pledging securities is not always the best choice it depends on your financial situation and goals.

When it makes sense to pledge:

• You need short-term liquidity for urgent requirements.
• You expect your investments to rise in value.
• You prefer lower borrowing costs compared to unsecured loans.
• You want flexibility in how the funds are used.

When it is better to avoid pledging:

• You already face high debt obligations.
• Your securities are underperforming, and you plan to exit.
• You cannot commit to timely repayment (risk of losing securities).
• You have cheaper alternatives like employee loans or family support.

Example: Suppose you urgently need Rs. 5 lakh for a business opportunity. Instead of redeeming mutual funds worth Rs. 7 lakh, to raise the same amount while letting them grow for future goals.

How to unpledge securities?

Unpledging is the process of releasing your securities once the loan is repaid.

Steps to unpledge:

1. Repay the outstanding loan (either partially or fully).
2. Log in to your depository or AMC portal.
3. Select the securities marked as pledged.
4. Raise a request for unpledging.
5. Once the lender confirms repayment, the lien is lifted.
6. Securities are restored to your account with full ownership rights.

The process is simple, but it is crucial to ensure timely repayment to avoid complications.

Best practices for pledging securities

To ensure smooth borrowing and minimal risk, follow these best practices:

• Borrow only what you need: Avoid over-leveraging and risking too much of your portfolio.
• Diversify pledged assets: Instead of pledging only shares, spread across mutual funds (lien-marked) or surrender policies to reduce risk.
• Track market movements: If values fall, lenders may issue a margin call. Keep backup funds ready.
• Be aware of charges: Review processing fees, pledge charges, and interest rates before committing.
• Repay promptly: Timely repayment prevents penalties and protects your securities.
• Use funds wisely: Since this is secured borrowing, misuse of funds can create financial strain.

Conclusion

Learning how to pledge securities for a loan can empower you to access quick liquidity without disrupting your investment journey. Instead of selling assets, pledging helps you retain ownership, enjoy future gains, and borrow at lower costs. If managed responsibly, pledging securities can serve as a safety net for emergencies and a smart strategy for funding personal or business goals.

Get quick liquidity with a loan against securities and achieve your financial goals without selling your investments.