Loan Against Securities: A Modern Financing Solution for Investors
Investors want smarter ways to manage cash without affecting long-term goals. A Loan Against Securities (LAS) offers a solution—it lets you borrow money by using your investments as collateral. This way, you can access funds without selling your assets.
What is a Loan Against Securities?
A Loan Against Securities is a type of secured loan where borrowers pledge financial instruments such as shares, mutual funds, bonds, or insurance policies to access short-term credit. Banks and non-banking financial companies (NBFCs) provide this facility to individuals, HNIs (High Net-Worth Individuals), and even corporate entities to meet their liquidity needs—be it for working capital, emergency funds, or even personal expenditures.
The loan amount typically depends on the type and value of the pledged securities, and lenders usually offer a loan-to-value (LTV) ratio of 50% to 80% depending on the asset class.
Why Consider LAS?
1. Retain Ownership, Stay Invested
One of the most attractive features of LAS is that you don’t need to liquidate your portfolio. Your investments remain intact and can continue to grow in value or generate returns even while they are pledged. This is particularly beneficial in bullish market conditions where exiting an investment might mean losing out on potential gains.
2. Quick Disbursal and Easy Processing
Loans against securities are often approved and disbursed faster than traditional loans since the collateral is already in the form of liquid financial assets. Many institutions even offer instant LAS approvals online, making the process seamless and hassle-free.
3. Lower Interest Rates
Since LAS is a secured loan, the interest rates are typically lower than unsecured personal loans or credit card borrowing. Depending on the lender and your asset profile, interest rates can be highly competitive, making it a cost-effective way to raise short-term capital.
4. Flexible Repayment Options
Most LAS products offer flexible repayment terms, including the option to pay only interest during the tenure and repay the principal at the end of the loan term. This can be particularly useful for investors who expect future cash inflows or who are managing seasonal or uneven income streams.
5. Customizable Loan Amounts
Whether you need ₹1 lakh or ₹1 crore, the loan amount can be customized based on the market value of your pledged securities. This scalability makes LAS a suitable solution for both small and large financing needs.
Types of Securities You Can Pledge
Lenders usually accept a broad range of financial assets, including:
- Listed Equity Shares
- Mutual Fund Units (both equity and debt)
- Government Bonds
- Insurance Policies (with surrender value)
- Fixed Maturity Plans (FMPs)
- Exchange-Traded Funds (ETFs)
The eligible list may vary across institutions, and so does the applicable LTV ratio.
Who Can Benefit from LAS?
- Retail Investors looking to meet personal or family needs without disturbing their investment plans.
- Business Owners in need of working capital or to manage cash flow gaps.
- HNIs and Professionals who require instant liquidity for high-ticket purchases or investments.
- Students and Parents seeking education funding without opting for traditional education loans.
Things to Keep in Mind
Before opting for a loan against securities, consider:
- Market Risk: If the value of your pledged securities drops significantly, you may face a margin call.
- Loan Tenure: Most LAS offerings are short- to medium-term in nature, ranging from a few months to a couple of years.
- Asset Lock-In: While pledged, you may not be able to sell or trade the securities unless you repay the loan or provide a substitute.
Conclusion
A Loan Against Securities is an intelligent, low-cost way to raise liquidity without letting go of your investment portfolio. It offers flexibility, speed, and cost-effectiveness—making it a compelling choice for today’s investors who want to stay financially agile.
