If you have built a healthy stock portfolio over time, it doesn’t just have to sit there. Your shares can do more than just appreciate in value they can give you instant liquidity. That’s where a loan against shares (LAS) comes in. With this facility, you can pledge your listed shares and get quick access to funds, all while retaining ownership.
Need funds without selling your shares? Apply for a loan against share in minutes.
What is a loan against shares?
A loan against shares is a type of loan against securities where your listed shares act as collateral. Based on the current value and type of shares, lenders offer a line of credit or term loan. You can borrow up to a certain percentage of the share value (typically 50–70%), and repay it as per the agreed terms.
How does a loan against shares work?
A loan against shares (LAS) allows you to unlock the value of your existing shareholdings without selling them. Essentially, you pledge your shares as collateral to access funds while retaining ownership and potential market gains. Here is how the process works:
Pledge your shares: You select eligible listed shares from your demat account and pledge them to the lender as security.
Assessment and approval: The lender evaluates the market value and stability of the pledged shares to determine your loan eligibility and sanctioned amount.
Loan limit allocation: You receive a loan limit (overdraft facility), typically up to a certain percentage of the share’s market value known as the Loan-to-Value (LTV) ratio.
Utilise funds flexibly: Withdraw funds from your loan account as needed and pay interest only on the amount you use, not the total sanctioned limit.
Monitoring of pledged shares: The lender monitors share prices. If the market value drops significantly, a margin call may be raised, requiring you to either add more shares or repay part of the loan.
Loan repayment and release: Once the borrowed amount and interest are repaid, the lender releases the pledged shares back to your demat account.
Key benefits of loan against shares
Quick access to funds without liquidating your investments.
Interest charged only on the amount utilised.
Continued ownership and market participation.
Ideal for short-term needs like emergencies, tuition, or business cash flow gaps.
Flexible repayment options and minimal paperwork.
How Loan-to-Value (LTV) works for a loan against shares?
The Loan-to-Value (LTV) ratio determines the maximum amount you can borrow against the market value of your pledged shares. It represents the percentage of your shares’ current value that the lender is willing to lend.
For instance, if your share portfolio is valued at Rs. 10 lakh and the applicable LTV is 50%, you can avail a loan of up to Rs. 5 lakh.
The LTV is regularly monitored because share prices fluctuate with market movements. If the value of your pledged shares falls, the lender may issue a margin call, asking you to either pledge more securities or repay part of the loan to restore the approved LTV ratio.
When to use a loan against shares?
A loan against shares is best suited for short-term liquidity needs where selling your investments may not be ideal. It offers quick access to cash while allowing you to retain ownership and benefit from potential market appreciation. Ideal situations to use it include:
Business expansion: Secure working capital without disrupting your long-term investments.
Emergency expenses: Manage sudden medical or personal emergencies without liquidating assets.
Debt consolidation: Repay high-interest loans using a low-interest, secured facility.
Investment opportunities: Capitalise on new ventures or market opportunities without disturbing your portfolio.
Education or travel costs: Fund large expenses conveniently with quick, collateral-based financing.
How to maximise benefits of loan against shares – Practical strategies
A loan against shares can be a smart financing tool if used thoughtfully. Here is how you can make the most of it:
Pledge only stable, liquid shares: Choose shares of established, high-cap companies with consistent performance to maintain a healthy LTV and avoid frequent margin calls.
Borrow only what’s needed: Utilise funds in parts to keep interest costs low, as interest is charged only on the withdrawn amount, not the total sanctioned limit.
Monitor market trends closely: Track share performance regularly to pre-empt any value drop and take corrective action before a margin call is triggered.
Use surplus funds to part-prepay: Reducing your outstanding balance early can help you save significantly on interest costs.
Maintain a repayment discipline: Repay on time to protect your pledged shares from liquidation and maintain a positive credit score.
Avoid pledging entire portfolios: Keep a mix of liquid and growth-focused shares to balance returns and collateral security.
Smart tips to use your loan effectively
Below are some of the smart tips to use your loan effectively:
1. Borrow only what is needed
It’s easy to get tempted when you see a large eligible loan amount, but the smarter move is to borrow only what you truly need. Over-leveraging can put unnecessary pressure on your repayment plan, especially if market conditions change or the loan against securities interest rates fluctuate or compounds over time.
2. Utilise the loan for productive purposes
Treat this funding tool like a business asset, not a credit card. Using the loan for high-impact goals like consolidating debt, funding a business opportunity, or covering an emergency can help you extract true value. Avoid spending it on short-term consumption or luxury splurges.
Make your shares work smarter, not harder. Get a loan against shares to fund business expansion or invest in high-return opportunities. Apply now
3. Monitor market conditions
Your shares remain the underlying collateral for this loan. If markets dip significantly, the lender may initiate a margin call requiring you to pledge more shares or repay part of the loan. Stay alert to market movements, diversify your holdings, and ensure your loan-to-value (LTV) ratio remains within safe limits.
Worried about stock market volatility? Choose a lender that offers flexibility in top-up and withdrawal. Explore options!
4. Plan your repayment
Repayment planning is crucial when availing a loan against securities. Though interest is typically charged on the amount you use (not the sanctioned limit), knowing your EMI and tenure helps you stay in control of your finances. Use digital tools to plan repayments around your income flow.
