How to take loan against shares?

Planning

oi-Sunil

By Sunil Fernandes

Published: Thursday, March 7, 2013, 10:30 [IST]

You desperately need cash in the short to medium term, but do not wish to sell shares and alter your portfolio, then the best way would be to look at loan against shares.

This would ensure that you do not desperately sell shares at a lower rate and also do not disrupt your portfolio which has been built over a period of time.

Shares can be pledged from any Depository Participant across the country and securities should be in the name of the borrower, before an application for a loan against share is made.

How it works?

You will need to first pledge your shares with the bank, which will then deposit the needed amount in a current account. You would be charged an interest only on the amount you have withdrawn. One should go for a loan when there is a dire necessity for the same and one does not want liquidate the portfolio for whatever reason. Look at the various charges and make sure you can pay back the amount. The bank will have the right to sell the shares and receive the amount payable and hence if you cannot pay back, your portfolio may vanish.

List of securities

You do not get a loan on every share that you own, simply because you might own shares that are illiquid and are not traded. The bank would give you a loan based on an approved list of scrips. For example, IDBI Bank offers you loan against shares on an approved list of 465 securities. These are generally the top traded scrips and have high volumes.

Loan to value

The loan to value would defer from bank to bank. The current loan to value is around 50 per cent of your portfolio. For example, if your portfolio value is Rs 30 lakhs, you could get a loan of Rs 15 lakhs.

Loan against shares is an excellent way to tide away a short term liquidity crunch.

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