Pros and Cons Of Taking Loan Against Shares

Know the pros and cons of taking a loan against shares, including lower interest rates, quick liquidity, market risks, and margin requirements.
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3 mins read
12-January-2026

There are times when you may need funds urgently for business expansion, an investment opportunity, or a personal expense but selling your shares feels like losing your long-term gains. That is where taking a loan against shares becomes a smart move. It allows you to use your stock portfolio as collateral and access liquidity without parting with your investments. You continue to benefit from market growth and dividends while using your funds for immediate needs. It’s a simple, efficient, and strategic way to make your assets work harder for you.

Need quick funds without selling your shares? Apply for a loan against shares to unlock liquidity while your portfolio keeps growing.

What is a loan against shares or stocks?

There are moments when you need funds urgently, but selling your shares does not feel right especially when you’ve built that portfolio for the long term. A loan against shares offers the perfect middle ground.

It is a type of secured loan where you pledge your shares as collateral to borrow money. The amount you can borrow depends on the current market value of the pledged stocks. This lets you access liquidity while still holding ownership and benefiting from dividends or price appreciation.

It is one of the most convenient ways to manage short-term financial needs without disturbing your long-term investment goals.

Pros of loan against shares

A loan against shares comes with several advantages that make it an attractive choice for investors looking for quick access to funds:

  1. Quick liquidity: You can access funds quickly without selling your shares, ensuring cash flow whenever needed.

  2. Retain ownership: You remain the owner of your shares and continue to enjoy dividends and capital appreciation throughout the loan period.

  3. Lower interest rates: Since this is a secured loan, interest rates are typically lower than unsecured options like personal loans.

  4. Flexible loan amount: The amount you can borrow depends on the market value of the pledged shares, giving you flexibility in managing your finances.

Want to meet urgent needs without disturbing your investments? Explore loan against securities and avail liquidity with low-interest flexibility.

Loan Against Shares
Loan Against Mutual Funds

Cons of loan against shares

While the benefits are clear, it’s important to understand the risks involved before taking a loan against shares. 

  1. Market risk: If share prices fall sharply, you may have to provide additional collateral or repay part of the loan to maintain the required margin.
  2. Interest cost: Although interest rates are lower than unsecured loans, costs can add up over time depending on your loan terms and tenure.
  3. Limited borrowing potential: You can typically borrow up to 50% of the asset’s value as per RBI guidelines. This percentage may vary based on the lender’s policy and the market value of your shares.
  4. Risk of losing assets: Failure to repay can result in your lender selling the pledged shares to recover the loan amount.
  5. Temporary loss of control: During the loan period, you may temporarily lose voting rights or control over the pledged shares. Always read the terms carefully before proceeding.

For a balanced view of both benefits and risks, you can also review the advantages and disadvantages of pledge shares before making a decision.

Key considerations before applying

Before opting for a loan against shares, it's important to understand the fine print and assess your financial stability. This type of loan can be a smart liquidity tool—but only when used with caution.

  • Check eligible shares: Only select shares approved by the lender will qualify as collateral.
  • Understand margin requirements: Lenders typically offer 50% of the share value as loan—this may vary.
  • Be prepared for volatility: A drop in share value can trigger margin calls.
  • Read the loan terms carefully: Ensure you are aware of interest rates, tenure, and repayment clauses.

Eligibility and documentation

Before applying, you must meet certain eligibility conditions and provide basic documents.

Who can apply:

  • Salaried individuals

  • Self-employed professionals

  • Indian residents

Basic criteria:

  • Age: 21 to 90 years (varies by lender)

  • Minimum income: As per lender policy

  • Minimum share value: Depends on the portfolio’s worth

Documents required:

  • PAN card (mandatory)

  • Aadhaar card or government-issued ID

  • Demat or shareholding statement

  • Bank details for loan disbursal and repayment

How to apply for a loan against shares

Applying for a loan against shares is straightforward. Here’s how it works step by step:

  1. Check eligibility – Ensure you meet the lender’s basic conditions.
  2. Submit required documents – Provide ID proof, shareholding details, and financial records.
  3. Pledge shares – The lender will mark your shares as pledged in your demat account.
  4. Loan approval – The loan amount will be based on the market value of your shares.
  5. Disbursal – Once approved, funds are transferred to your account.

Having clarity on these points also makes it easier to understand how to pledge shares for loan and proceed with confidence.

Interest rates and repayment options

The interest on a loan against shares is charged only on the amount you use, making it cost-efficient. You can opt for flexible repayment options either pay interest monthly or repay the principal when convenient.

You also have the option to partially release or add shares as collateral, depending on market movements.

Risks of taking a loan against shares

The biggest risk with taking loan against shares is market volatility. A sudden fall in share prices can reduce your loan-to-value ratio, prompting a margin call. Failure to respond to this may lead the lender to sell your pledged shares.

It is also important to ensure that your loan does not extend beyond your repayment capacity. Always borrow an amount you can comfortably manage.

RBI guidelines and loan limit for loan against stocks

The Reserve Bank of India (RBI) regulates loans against stocks to control risk and prevent excessive borrowing against volatile equity markets.

Key RBI guidelines

  • Loan-to-Value (LTV) limit: Loans are capped at a fixed percentage of the market value of pledged shares.
  • Eligible stocks only: Only approved, listed, and dematerialised shares are accepted as collateral.
  • Margin maintenance: Borrowers must maintain the required margin; shortfalls can trigger margin calls.
  • End-use restrictions: Funds cannot be used for stock market speculation or IPO investments.

Loan limit as per RBI norms

  • Market-linked limit: Loan amount depends on the current value of pledged stocks, within RBI’s LTV cap.
  • Dynamic availability: Borrowing power may change if share prices rise or fall.
  • Lender discretion: Lenders may apply stricter limits based on stock quality and borrower profile.

Conclusion

A loan against shares is a smart and convenient way to raise funds without selling your investments. It helps you retain ownership, enjoy potential returns, and access liquidity at lower interest rates. However, market risks and margin requirements should be carefully considered before applying. Used wisely, this facility can be an effective short-term solution for funding personal or business needs while keeping your long-term wealth intact.

Looking to make your investments work harder? Apply loan against shares can give you instant liquidity without losing ownership of your stocks.Top of FormBottom of Form

Frequently asked questions

Is it good to take a loan against shares?
Taking a loan against shares can be beneficial if you need quick liquidity while retaining your investments. However, it comes with risks like market volatility and the of losing your shares if the loan isn’t repaid.

Can you secure a loan against shares?
Yes, you can secure a loan against shares by pledging them as collateral. The loan amount is typically a percentage of the share value, allowing you to access funds while retaining ownership of your stocks.

How much loan can I get against my shares?

You can typically get up to 50% of the market value of your shares as a loan, depending on the lender’s policy and share type. The final sanctioned amount also considers daily stock price fluctuations and risk parameters.

Which shares are eligible for loan against shares?

Only listed shares approved by the lender are eligible. These usually include actively traded, high-market-cap stocks from reputed companies. Illiquid or penny stocks are generally excluded due to their higher risk and lower collateral value.

What happens if the share price falls after taking the loan?

If the share value drops significantly, the lender may issue a margin call asking you to provide additional collateral or repay part of the loan. If unmet, they may sell pledged shares to recover the loan amount.

Is there any tax implication of taking a loan against shares?

No, taking a loan against shares does not attract any direct tax since you are not selling your holdings. However, interest paid on the loan is not tax-deductible for personal purposes, unlike certain business-related borrowings.

What is the interest rate on loan against shares?

Interest rates for loans against shares typically range between 8% to 15% per annum, depending on the lender, your credit profile, and the type of shares pledged. Rates are generally lower than unsecured credit due to the secured nature of the loan.

What are the risks of taking a loan against shares?

Taking a loan against shares carries risks like market volatility, where falling share prices can trigger margin calls. There's also the risk of losing your pledged shares if you default, along with interest costs and temporary loss of voting rights.

Who is eligible to apply for a loan against shares?

Individuals, including salaried employees, self-employed professionals, and business owners, are eligible to apply for a loan against shares. Applicants must be at least 18 years old, hold valid demat shares from approved companies, and meet the lender’s KYC, income, and credit requirements.

What documents are required to avail a loan against shares?

Key documents include a valid identity proof (PAN, Aadhaar, passport, etc.), address proof, recent photographs, bank account statements, and demat account details. Lenders may also require income proof for assessment. All documents must comply with KYC norms before disbursement of the loan against shares.

What are the fees and charges associated with a loan against shares?

Fees typically include processing charges, stamp duty, and applicable taxes. Additionally, lenders may levy interest rates based on the loan amount and collateral value. Some may charge for statement issuance, prepayment, or foreclosure. Exact charges vary by institution, so borrowers should check the fee schedule carefully.

Can I use any type of shares as collateral?

Not all shares qualify as collateral. Only approved shares listed by the lender and traded on recognised stock exchanges are accepted. Shares must be held in a demat account and marked for pledge. Penny stocks, illiquid shares, or unlisted company shares are generally not eligible.

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