What is Loan Against Stocks

Know about loan against stocks, how to apply for it, how does it work in detail.
APPLY NOW
Avail funds while your stocks keep growing!
APPLY NOW
3 mins read
30-May-2024

Have you ever faced a sudden need for funds but didn’t want to sell your investments? That is a common situation for many investors. The good news is you do not always have to liquidate your portfolio to meet urgent financial needs. A loan against shares, also known as a loan against stocks, lets you unlock the value of your investments while keeping ownership intact. By pledging your shares as security, you can access quick liquidity for emergencies, business needs, or personal expenses without losing out on future market gains.

Turn your shareholdings into working capital. Check how much you can borrow against your portfolio today. Apply now

What is a loan against stocks?

A loan against stocks is a secured loan where investors pledge their shares as collateral to access funds. This means you can get a loan while still retaining ownership of your investments.

The lender holds the pledged shares until the loan is repaid, but you continue to benefit from dividends and market growth. It is an efficient way to meet liquidity needs without selling your assets.

Types of stocks approved for loan

Different types of stocks qualify for a loan against shares. Here is how lenders generally categorise them:

Type of Stocks/Assets

Description

Details

Blue-chip stocks

Blue-chip stocks are shares of large, well-established companies with a history of stable earnings and strong financials.

Lenders often prefer blue-chip stocks as collateral due to their stability and liquidity in the market. These stocks are less volatile and are considered safer bets for lenders.

Mid-cap stocks

Mid-cap stocks are shares of companies with a market capitalisation between that of large-cap and small-cap companies.

While mid-cap stocks are more volatile than blue-chip stocks, they can still be approved for loans against shares. Lenders may require a higher margin or interest rate for such stocks.

Large-cap stocks

Large-cap stocks are shares of companies with a market capitalisation typically exceeding Rs. 20,000 crore

Large-cap stocks are considered relatively safe investments, making them suitable for loans against shares. Lenders may offer favorable terms for loans backed by large-cap stocks.

Exchange Traded Funds (ETFs)

ETFs are investment funds that are traded on stock exchanges, similar to stocks.

Some lenders may accept ETFs as collateral for loans against shares. ETFs offer diversification benefits, making them attractive to lenders.

Mutual fund units

Mutual fund units represent ownership in a mutual fund, which pools money from investors to invest in stocks, bonds, or other securities.

Some lenders may accept mutual fund units as collateral for loans against shares. However, the loan amount may be limited to a certain percentage of the mutual fund's net asset value.
Loan Against Shares
Loan Against Mutual Funds

How do loans against stocks work?

Here is a simple look at how the process unfolds:

  1. Pledge your stocks: The borrower pledges eligible shares as collateral.
  2. Loan amount: The lender evaluates the stock value and offers a percentage-based loan (usually 50–70% of current value).
  3. Agreement: Terms such as interest rate, tenure, and repayment method are finalised.
  4. Fund disbursement: The approved amount is credited to your account, often within 24–48 hours.
  5. Ownership retained: Even though shares are pledged, the borrower remains the owner and continues to receive dividends.
  6. Interest payments: Interest is paid periodically as per the agreement.
  7. Margin requirements: Borrowers must maintain a minimum margin as set by the lender.
  8. Margin calls: If stock value falls below the margin, additional security or repayment may be required.
  9. Repayment: The borrower repays as per the schedule.
  10. Release of shares: Once repayment is complete, the pledged stocks are released back.

Benefits of loan against stocks

A loan against shares can offer several distinct advantages:

  • Liquidity: Investors can access funds without selling their stocks, allowing them to meet their short-term liquidity needs.
  • Retain ownership: Investors retain ownership of their stocks, which means they can benefit from any future appreciation in stock prices.
  • Lower interest rates: Loan against shares typically offers lower interest rates compared to unsecured loans, as the stocks serve as collateral.

Things to consider before availing loan against stocks

While loans against shares are convenient, it is important to weigh a few key factors before applying:

  1. Loan amount: Consider the amount you need and ensure it aligns with the value of the stocks you plan to pledge. Lenders typically offer a loan amount based on a percentage of the stock's current market value.
  2. Interest rates: Compare interest rates offered by different lenders. Lower interest rates can help reduce the cost of the loan.
  3. Loan-to-Value (LTV) ratio: Understand the LTV ratio offered by the lender, which determines the maximum loan amount you can avail of based on the value of the pledged stocks. A higher LTV ratio can help you access more funds but may increase the risk of margin calls.
  4. Margin calls: Be aware of the possibility of margin calls if the value of the pledged stocks falls below a certain level. Ensure you have a plan in place to meet margin requirements to avoid potential consequences.
  5. Repayment terms: Review the repayment terms, including the tenure and schedule of repayments. Ensure you can comfortably manage the repayment schedule along with your other financial obligations.
  6. Impact on stock portfolio: Consider the impact of pledging stocks on your overall stock portfolio. Pledging too many stocks may limit your ability to make changes to your portfolio or take advantage of market opportunities.
  7. Risk assessment: Assess the risks associated with a loan against stocks, including the potential loss of pledged stocks if you are unable to repay the loan. Consider alternative financing options if the risks outweigh the benefits.
  8. Tax implications: Understand the tax implications of availing a loan against stocks. Interest paid on the loan may be tax-deductible, but the sale of pledged stocks may incur capital gains tax.
  9. Alternative financing options: Explore alternative financing options, such as personal loans or lines of credit, to compare terms and choose the best option for your financial needs.
  10. Financial advisor consultation: Consider consulting with a financial advisor to assess your financial situation and determine if availing a loan against stocks is the right choice for you. A financial advisor can help you weigh the pros and cons and make an informed decision based on your circumstances.

Why a loan against shares is a smart financial move?

For many investors, this loan type bridges the gap between opportunity and liquidity. It allows you to seize investment or personal opportunities without disturbing your core holdings. Whether it is expanding a business, handling a medical expense, or managing short-term cash flow, a loan against shares can help you stay financially agile.

Conclusion

A loan against shares is one of the simplest ways to unlock liquidity without compromising long-term investments. It lets you raise funds swiftly while keeping ownership intact. However, like all financial products, it’s essential to understand the terms, risks, and repayment conditions before applying. When used wisely, it can become a smart financial tool that balances liquidity with continued wealth growth.

Stay invested and stay liquid. Apply for a loan against shares can power your financial goals today.

Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Frequently asked questions

Is it good to take a loan against stocks?
Taking a loan against stocks can be a viable option for individuals who need funds but want to retain ownership of their stocks. It allows them to unlock the value of their investments without selling them. However, it's important to carefully consider the risks, such as margin calls and potential loss of collateral, before opting for this type of loan.
What is the interest rate on loans against stocks?
The interest rate on a loan against stocks can vary depending on factors such as the lender, the loan amount, the loan-to-value ratio, and the borrower's creditworthiness. Generally, interest rates for loans against stocks are lower than unsecured loans, ranging from around 9% to 15% per annum.
Show More Show Less