In today’s fast-paced financial world, there are times when you may need immediate funds to address emergencies, seize a business opportunity, or manage short-term cash flow issues. Selling long-term investments like stocks or mutual funds might not always be the best option, especially when markets are down. That’s where an instant loan against shares comes in handy. This financial tool allows you to leverage your existing portfolio without liquidating your assets, offering a smart and efficient way to access funds.
What is an Instant Loan Against Shares?
An instant loan against shares is a type of secured loan where investors pledge their shares or mutual funds as collateral to obtain funds from a lender. This facility is typically offered by banks and non-banking financial companies (NBFCs). Unlike traditional loans, the process is quick and often digital, making it a convenient choice for those seeking urgent financial help.
How Does It Work?
Once you pledge your shares or mutual fund units, the lender assesses the value of these securities and sanctions a loan based on a certain percentage of their current market value. You continue to retain ownership and the right to earn dividends or capital appreciation, but the lender holds the lien on the securities until the loan is repaid.
Key Benefits of a Loan Against Shares
- Quick Disbursal: With digital platforms, the loan approval and disbursal process can be completed within a few hours.
- No Need to Sell Investments: You don’t have to part with your investments. Retain ownership while accessing funds.
- Lower Interest Rates: Compared to personal loans or credit cards, loans against shares generally offer more competitive interest rates.
- Flexible Repayment Options: Most lenders offer flexible repayment schedules tailored to your financial needs.
Loan Against Shares Eligibility Criteria
Before applying, it’s important to understand the loan against shares eligibility criteria set by most lenders:
- Age: Typically between 18 and 65 years.
- Type of Securities: Only approved shares or mutual funds are eligible.
- Ownership: The securities must be in the applicant’s name.
- Demat Account: Shares must be held in a demat account linked to the loan application.
- Credit Score: A good credit score improves approval chances and terms.
Eligibility criteria can vary from lender to lender, so it’s wise to check the specific requirements of your chosen financial institution.
Loan Against Mutual Funds
Besides shares, mutual fund units are also acceptable collateral for such loans. A loan against mutual funds works similarly to that against shares. You pledge mutual fund units (both equity and debt) to the lender. They are marked under lien in favor of the lender, allowing you to borrow a percentage of their value.
This is particularly beneficial for long-term investors who don’t want to redeem their mutual fund units prematurely and lose out on potential growth.
Loan Against Shares Maximum Limit
The loan against shares maximum limit is determined by several factors:
- Type of Securities: Blue-chip stocks and large-cap mutual funds usually allow higher borrowing limits.
- Lender’s Policy: Each lender has a maximum cap which could range from INR 1 lakh to INR 20 crore or more.
- Market Value: The value of your pledged securities on the date of application.
For example, if the lender allows up to 50% of the market value of the shares and your portfolio is worth INR 10 lakhs, you may be eligible for a loan of up to INR 5 lakhs.
Process to Apply for an Instant Loan Against Shares
- Check Eligibility: Review the lender’s eligibility criteria.
- Submit Application: Apply online or visit the lender’s branch.
- Pledge Securities: Select the shares or mutual funds to pledge.
- Verification and Approval: Lender verifies details and calculates loan value.
- Loan Disbursal: Upon approval, funds are credited to your account, often within a few hours.
Points to Consider
- Market Risks: Falling stock prices may affect your loan eligibility or trigger margin calls.
- Interest Costs: While interest rates are lower than unsecured loans, they can still add up over time.
- Loan Tenure: Choose a repayment period that matches your financial planning.
Conclusion
An instant loan against shares is an ideal financial solution for investors who require urgent funds but want to retain their investment portfolio. By offering quick access to money without disrupting your long-term financial goals, this option serves as a win-win.
To explore a fast, secure, and hassle-free way of getting an instant loan against shares, trust Divadhvik to meet your funding needs with reliability and transparency.
