In the ever-evolving financial world, accessing quick funds without selling valuable assets is a top priority for many investors. One of the smartest ways to do that is through a loan against shares (LAS). This method allows individuals to unlock the value of their equity investments without liquidating them.
But before applying, it’s crucial to understand the loan against shares eligibility criteria, documentation, benefits, risks, and more. This comprehensive guide will cover everything you need to know so you can make an informed financial decision.
- What is a Loan Against Shares?
- Why Consider a Loan Against Shares?
- Loan Against Shares Eligibility Criteria
- Loan Against Shares Maximum Limit
- Types of Loan Against Shares
- Benefits of Loan Against Shares
- Risks and Considerations
- Loan Against Shares vs Personal Loan
- Top Banks and NBFCs Offering LAS in India
- How to Apply for a Loan Against Shares
- Conclusion
- FAQ
What is a Loan Against Shares?
A loan against shares is a type of secured loan where you pledge your shares or other eligible securities (mutual funds, bonds, etc.) as collateral to borrow money from a bank or financial institution. Instead of selling your shares to meet urgent financial needs, you can retain ownership and still raise funds.
This financial instrument is highly favored among investors who need short-term liquidity but don’t want to disturb their long-term portfolio.
Why Consider a Loan Against Shares?
- Quick Access to Funds: Often processed faster than personal loans.
- Lower Interest Rates: Secured loans typically have lower interest compared to unsecured credit.
- Retain Ownership: You continue to benefit from dividends and bonuses.
- Flexible Repayment: Options like overdraft and term loans are available.
However, just like any loan, eligibility plays a major role in approval and loan limits.
Loan Against Shares Eligibility Criteria
Before applying, you must meet certain basic conditions. While specific criteria can vary between lenders, here’s a general overview:
1. Age Requirement
Most banks require the borrower to be:
- Minimum Age: 18 years
- Maximum Age: 65 years (at loan maturity)
2. Employment Status
You can apply if you are:
- A salaried individual working with a reputed organization
- A self-employed professional or business owner
- High Net-Worth Individuals (HNIs) and NRIs (in some cases)
3. Portfolio Requirements
- Only approved shares/securities listed by the lender are accepted.
- Shares must be in demat form.
- A minimum holding value may be required, typically ₹50,000 to ₹1,00,000 or more.
4. Account Type
- You must have a demat account and trading account (with some lenders).
- A savings or current account with the lending bank may be required.
5. CIBIL Score
While not as strict as for personal loans, a moderate to good credit score (650+) helps with approval and better interest rates.
6. Documentation
You’ll typically need:
- KYC documents (PAN, Aadhaar, etc.)
- Demat account statement
- Income proof (for higher limits)
- Bank statement
- Share pledge agreement
Loan Against Shares Maximum Limit
The loan against shares maximum limit depends on several factors:
1. Value of Pledged Shares
- Loan-to-Value (LTV) ratio is typically 50% of the current market value of approved shares.
- Example: If your share portfolio is worth ₹10 lakhs, you may get a loan of ₹5 lakhs.
2. Type of Securities
- Shares: LTV ~50%
- Mutual Funds/Debt Funds: LTV ~60-70%
- Bonds: LTV may go up to 80%, depending on the issuer and rating.
3. Borrower Profile
- High-income applicants or HNIs may receive a higher loan limit.
- Some banks offer limits up to ₹20 crores for corporates and HNIs.
4. Pledged Shares Volatility
- Highly volatile stocks may receive a lower LTV or may be excluded.
Types of Loan Against Shares
1. Overdraft Facility
- A credit line is provided.
- Interest is charged only on the amount used.
- Flexible withdrawals and repayments.
2. Term Loan
- Fixed loan amount is credited.
- Fixed EMI or bullet repayment options.
Choose the option that matches your financial goal and repayment ability.
Benefits of Loan Against Shares
- ✅ No Need to Sell Investments
- ✅ Low Processing Time – Get funds in 1–3 working days
- ✅ Interest Only on Utilized Amount (in overdraft)
- ✅ Digital Processing with minimal paperwork
- ✅ Continue Earning Dividends & Bonuses
Risks and Considerations
Despite its advantages, here are some potential pitfalls:
- 📉 Market Risk: If your share value falls, you may face a margin call.
- 🧾 Forced Liquidation: If you fail to maintain margin or repay, the lender may sell your pledged shares.
- 💸 Interest Cost: Though cheaper than personal loans, interest still adds up, especially on higher usage.
Always borrow responsibly and avoid pledging shares needed for long-term goals.
Loan Against Shares vs Personal Loan
| Feature | Loan Against Shares | Personal Loan |
|---|---|---|
| Security | Secured (Shares pledged) | Unsecured |
| Interest Rate | Lower (10–13%) | Higher (12–24%) |
| Processing Time | Fast | Moderate to Fast |
| Loan Amount | Based on shares’ value | Based on income/credit |
| Ownership of Shares | Retained | Not applicable |
Top Banks and NBFCs Offering LAS in India
Some popular financial institutions offering LAS include:
- HDFC Bank
- ICICI Bank
- Kotak Securities
- Axis Bank
- Bajaj Finserv
- HDFC Securities
- IIFL Securities
- SBI (select branches)
Each has its own eligibility rules, interest rates, and documentation requirements. Compare before you apply.
How to Apply for a Loan Against Shares
Step-by-Step Process:
- Check Eligibility based on your age, employment, and shareholding.
- Choose a Lender offering the best interest rate and LTV.
- Open/Link Demat Account if not already linked with the lender.
- Submit Documents including KYC, demat statements, and income proof (if required).
- Pledge Shares Digitally (through NSDL/CDSL).
- Loan Approval & Disbursal – usually completed within 48 hours.
Many banks also offer online loan against shares for select customers with digital verification.
Conclusion
Taking a loan against shares is a smart financial strategy to access liquidity without disrupting your investment goals. However, it’s important to thoroughly understand the loan against shares eligibility, loan limits, and market risks before proceeding.
Whether it’s for funding a business, personal expenses, or investing in a new opportunity, LAS offers speed, flexibility, and control. Just ensure your portfolio is robust, and you have a solid repayment plan.
And if you’re wondering where to start, trust professionals who understand both investment and lending. For expert advice and transparent processing, check your loan against shares eligibility today with Divadhvik – your reliable partner in financial solutions.
