All about loans against shares

Banks and financial institutions are always looking for new ways to meet the growing demand for funding. One such method is a loan against securities. These securities could be gold, fixed deposits, insurance schemes, shares you hold, among others.

What are loans against shares?

When you borrow a loan by providing the shares you hold as security, it is called a loan against shares. These shares are not sold to the bank, merely pledged to them, and the borrower continues to get the shareholder benefits like rights, bonuses, dividends, etc. You can also get an overdraft against the shares you pledge. However, the loan amount and the overdraft amount both depend on the value of the share. It can be anything between 50% to 70% of the share value.

However, not all shares can be pledged for a loan. Lenders usually provide money against a particular set of shares.

How do they work?

When you apply for a loan against shares, on most occasions, a current account is opened in your name with an ATM card, personalised cheque book, and even mobile and internet banking facilities. This allows you to withdraw cash as required.

However, Bajaj Finserv provides a hassle-free online process wherein a dedicated relationship manager guides you with all your queries. The customer portal – Experia lets you easily take disbursement, make repayment, and provide a comprehensive view of your account. Moreover, since these are secured loans, these interest rates are lower as compared to unsecured loans.

With pre-approved offers from Bajaj Finserv, availing of finance has become even more accessible. All you have to do is provide some basic information, and you can get your exclusive pre-approved offers.

Eligibility and documents

The shares that can be pledged vary from one institution to another. Each bank and financial institution has its own list of shares that can be pledged. Shares held in the names of HUF, minors, companies and NRIs cannot be pledged; only those held by adult individuals are eligible.

To borrow, you need to fill a pledge request form with the details of the shares you’re going to pledge and submit that to the bank or institution. You also need to provide the following document along with your application:

• Identity proof/residence proof
• Income proof like a salary slip
• Recent bank statements of the last six months
• PAN card
• Cancelled cheque
• Holding statement from the depository participant

Features of the loan

You can avail of these loans for anything from household expenses, marriage, higher studies, and so on. They don’t usually have prepayment charges and come with an overdraft facility. Moreover, the shares are evaluated weekly to assess their value, as with any loan having a repayment plan in place before applying will make approval easier.