In today’s era, where everything is easily available and accessible. You just need to do proper research and have accurate information about a particular thing. Loans are one of the important and convenient aspects for borrowers. Today, there are different types of loan options available like personal loans, unsecured and secured loans, education loans, short term loans etc. However, when it comes to secured loans, not all secured loans require the use of property and gold. If you are already a shareholder, you might be able to access your money without selling your investments. This facility is called a Loan against Securities.
In this guide, we’ll be discussing what is loan against securities, how it works, the rate of interest, the risks involved, and the situations where it makes sense to use this type of loan.
What Is Loan Against Securities?
Loan Against Securities (LAS) is a type of secured loan wherein you use your financial investments as security to raise funds.
Instead of selling your stocks or mutual funds in an emergency situation, you pledge them temporarily with the bank or NBFC and take the loan on the basis of the fund valuation.
You also continue:
- To own the investments
- To earn dividends (in most cases)
- To avail benefits if the market value increases
However, the pledged securities cannot be sold until the loan is repaid.
What Can Be Pledged?
Common Eligible Securities:
- Shares Listed
- Mutual Funds (Equity & Debt)
- Bonds
- ETFs
- Insurance policies (surrender value-based)
- Fixed maturity plans
However, not all types of securities are eligible. Lenders have a list of approved ones.
How Much Loan Can You Get?
The amount invested is not fully utilized. Investors do not get 100% of their invested value. A margin is applied to guard against market risk.
| Type of Security | Typical Loan to Value (LTV) | Example |
| Equity Shares | 50%–60% | ₹2,00,000 value → ₹1,00,000 loan |
| Equity Mutual Funds | 50%–60% | ₹5,00,000 → ₹2,50,000–₹3,00,000 |
| Debt Mutual Funds | 65%–80% | ₹5,00,000 → ₹3,25,000–₹4,00,000 |
| Bonds | 70%–80% | ₹1,00,000 → ₹70,000–₹80,000 |
Higher volatility = lower Loan To Value.
Interest Rate on Loan against Securities:
Generally, the rate of interest charged on the loan against securities will be lower compared to a personal loan, as it is a secured loan.
Typical Range in India:
- 9% to 14% per annum
However, the rates differ depending on:
- Type of securities
- Securities
- Portfolio quality
- Loan Amount
- Market Risk Lender Policy
Example Calculation
If you take ₹3,00,000 at 10% interest:
| Loan Amount | Rate | Tenure | Approx Monthly Interest (interest-only structure) |
| ₹3,00,000 | 10% | 1 year | ₹2,500 |
The facilities of many LAS operate in a similar way to an overdraft. That is to say, you pay interest on what you take.
Why People Opt for Loan Against Securities:
1. No Need to Sell Investments
Selling shares would subject you to capital gains tax and prevent long-term growth.
2. Lower Interest Cost
Compared to unsecured loans.
3. Faster Processing
This is because, given that there is collateral, the approval is faster
4. Flexible Usage
Funds can be used for:
- Business needs
- Medical emergencies
- Short-term liquidity gaps
Personal requirements However, the funds are usually not used for speculative stock trading.
Risks of Loan Against Securities:
It is at this point that borrowers are said to be underestimating the risk
1. Market Risk
If the value of your pledged investments decreases, the lender may send you a margin call.
Example:
You had pledged an investment of ₹5,00
Loan received: ₹2,50,
If the market value drops to ₹3,50,000
Your LTV will be high.
The lender may ask you to:
- Repay part of the loan
- Pledge more securities
If you don’t succeed, then they have the right to sell off your investments
2. Forced Liquidation
In the event of any sharp market crash and failure to respond to margin calls, lenders might sell your securities without your consent.
3. Overconfidence Risk
Borrowers may assume:
“I am not selling my investment, so it’s safe.” However, if the market declines and lenders begin to liquidate, you may lose assets for possibly low prices.
Why Does This Loan Make Sense?
Good Use Cases:
- Short-term Liquidity (3-12 months)
- Temporary business capital
- Bridging funds from transaction to transaction
- Avoiding Premature Sale of Long-Term Investments
Not ideal for:
- Long-term Consumption Loans
- Lifestyle purchases
- High-risk speculative trading
Loan Against Securities vs Personal Loan:
| Feature | Loan Against Securities | Personal Loan |
| Collateral | Yes | No |
| Interest Rate | Lower | Higher |
| Processing Speed | Fast | Moderate |
| Risk | Market-linked | No market risk |
| Asset Ownership | Retained | Not applicable |
| Default Impact | Asset sale | Credit damage |
Both the loans have their own limitations and challenges, but they are designed to meet the borrowers needs according to what suits best for them.
Process Overview:
- Application Submission
- Provide Demat details
- Sign a pledge agreement
- Lender marks lien
- Loan disbursed
- Monitor margin regularly
Currently, there are various digital channels today that the borrowers can use to compare their options of both secured and unsecured borrowing before making the decision. Some fintech platforms like Olyv facilitate instant unsecured loans enabling the borrowers to understand their options of borrowing before ultimately choosing the borrowing structure like LAS.
Borrowers Who Can Consider:
Loan Ideal for:
- Investors with strong portfolios
- Business owners in need of brief liquidity
- Salaried Individuals with Long-Term Investment
Not ideal for:
- First time investors
- People with unstable incomes
- Those who cannot tolerate market cycles
Make sure to understand the eligibility criteria and know if you are a perfect fit for such type of loan.
Final Thoughts On Loan Against Securities:
What is a loan against securities?
It is a structured way to unlock liquidity without selling your investments.
The rate of interest for loans against securities is generally less than unsecured loans, which makes this loan product attractive in case one needs short-term funding. However, the biggest risk emanates from market volatility. If your portfolio value falls steeply, you can get margin calls or even face forced selling.
That by design is not a hazardous product, but it does require awareness and monitoring.
Smart will be treating it as a temporary liquidity tool and not a long-term habit of borrowing. If used responsibly, Loan against Securities will allow you to keep investment growth on track with efficient management of financial gaps. Always calculate risk, interest cost, and repayment capacity before pledging your portfolio.
Disclaimer: All loans extended to business persons are granted strictly in their individual and personal capacity and shall be treated as personal loans only, and not as business, commercial, or working capital loans, irrespective of the borrower’s profession or business activity.
I’ve always wondered about loans like these. It’s reassuring to know you can still hold on to your investments, but I’d be cautious of how much debt you’re taking on, especially if the market is volatile.