The reason to go for loans against shares or securities is to preserve your investment and not to mention take care of the personal need (could be an emergency or need of liquidity). This loan should however be undertaken if and only if you are expecting a certain sum in near future; this is only for short term need. Just in case you plan to invest the sum for future gains, interest, processing fee and other cost borne should also be considered in future profit. Risks should be always calculated and considered before taking.

Loan amount sanctioned depends on

1. The extent of funding on a particular stock
2. Price (base price) considered by the lender for calculation of value of the shares.

General Info

The loan amount that would be sanctioned depends on the form of shares – physical or demat. Minimum amount for loan has to be Rs.1,00,000 and maximum is up to Rs.10,00,000 for physical shares and Rs.20,00,000 for demat shares.

• Interest rate charged on loan against shares usually ranges between 15-18.5%. An extra interest of 2% per annum might also be charged on the amount by which your outstanding amount exceeds the limit and for the period it is in excess.
• Apart from your own shares, you can also pledge the shares of your spouse, children (above 18 years of age), parents, brother(s)/sister(s), in laws, grandparents and grandchildren (above 18 years of age)
• The amount of loan that you will get depends on the valuation of the security, applicable margin, your ability to service and repay the loan and other conditions, as applicable from time to time and from bank to bank.
• The charges that are levied in case of loan against shares include processing fees (usually 1-1.5% of the loan amount) and, at times, documentation charges (differs from bank to bank).
• In case of demat shares; around 65% of the amount of scrips pledged is available as overdraft. The percentage drops down to 50% if the shares are in physical form.

General Conditions:

• The loan is extended against shares of eligible companies and, in a few cases, units of reputed open-ended mutual funds.
• Usually, a maximum of 20 shares can be pledged, at a time.
• Loans against mutual fund units are based on their NAV value.

Necessary Conditions

• The shares should be on the approved list of the bank.
• The shares should be fully paid up.
• Scrips in the name of corporate, minors, Firms, HUF, and NRIs are not eligible for finance under this scheme.
• The directors or promoters of companies cannot pledge scrips of the same company.
• All shares should be strictly in their marketable lots.

Documents Required

For shares that are in Demat form:-

• Request form for transaction.
• Photocopy of dividend warrants of shares and units to be pledged.
• Covering letter from the company received by the shareholder at the time of transfer.

For shares in Physical form:-

• Share certificates
• Signed and valid transfer deeds (not more than a month old)
• Photocopies of dividend warrants of shares and units to be pledged
• Allotment letter for rights or bonus shares from the company, or broker contract note specifying share certificate and distinctive numbers.
• Covering letter from the company received by the shareholder at the time of transfer.

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• LOAN against SHARES (Securities) | Features & Advantages