5 Important Things to Know Before Applying for a Loan Against Securities
Ever found yourself in a financial pickle where you needed funds but didn’t want to liquidate your investments? Life is evolving and so are your financial needs. While you may have securities to rely on, it could directly trigger your tax liabilities. Well, here’s a solution for you: Loan Against Securities (LAS). It’s like having your cake and eating it too! In terms of loan against securities (LAS), at smallcase, we can provide a loan against mutual funds & a loan against your invested smallcases that helps you gain instant access to capital. Now, let’s dive into understanding 5 things to know before getting a loan against securities.
What is Loan Against Securities (LAS)?
In a Loan Against Securities scheme (LAS), you pledge the securities held in your demat account to access stock collateral loans from a financial institution or lender. Just like gold or house loans, your collateral could be securities like stocks, mutual funds, bonds, or other eligible financial instruments. This includes mutual funds, which can also be used as collateral for loans. For LAMF, smallcase charges a competitive loan against stock interest rate starting at 10.75% per annum.
However, in a loan against demat shares, you continue to hold the shares in the account, but the lender has a lien on them until the loan is repaid. The lender assesses the value of these securities and extends a loan amount based on a certain percentage of their market value.
Referred as the loan-to-value (LTV) ratio. The higher the LTV ratio, the more funds you can access. The beauty of LAS is that you retain ownership of your securities and continue to earn dividends or interest on them, even as they are held as collateral. It’s a win-win, allowing you to unlock the value of your investments without having to part ways with them.
5 Things to Know Before Getting Loan Against Securities (LAS)
Before applying for a loan against shares and securities at smallcase, there are some of the factors you should consider. Thus, let’s have a look at them.
- Eligibility: The best part about opting for LAMF via smallcase is that there is no bar on the minimum line of credit score or income requirements. To check the loan against shares eligibility checkbox, you just need to be between 18-70 years of age, must be an Indian citizen, and have an active PAN card linked to your account. Please have a look at the LAMF eligibility & documents here.
- Loan Amount: If you’re interested in LAS, you can consider LAMF on smallcase. The loan amount depends on the value of the mutual funds you will keep as collateral. You can avail a loan against mutual funds via smallcase from Rs. 25,000 to Rs. 5,00,00,000.
- Loan Tenure: The loan against security tenure that the customer can opt is upto 36 months. Certain lenders borrow against stock with the flexibility to make monthly interest payments while deferring the repayment of the principal amount until the end of the loan tenure.
- Fees: Some lenders may charge a processing fee. However, it’s important to understand the fees and charges structure before getting a LAS loan against securities.
- Loan Repayment: Before obtaining a loan against shares, it’s crucial to have a clear repayment strategy in place to ensure that you can repay the loan on time. Failure to repay the loan on time can result in the loss of the pledged securities.
Which is Better – Breaking Investments or Taking a Loan Against Securities?
Deciding between breaking your investments or taking a Loan Against Securities (LAS) depends on your financial situation and goals. Breaking investments can provide immediate cash but may result in capital gains tax and loss of potential returns. On the other hand, loan against securities in India can be a real game-changer when you need funds without parting ways with your investments. A loan on securities allows you to access funds while keeping your investments intact, avoiding tax implications. If you have a clear repayment plan and can manage the interest on the loan, LAS is often the better choice to maintain your financial portfolio’s health and long-term growth.
To Wrap It Up…
In conclusion, loans against securities in India present a smart and practical financial solution for individuals who want to access funds without liquidating their valuable investments. With LAS loan against securities, you can leverage the power of your Demat securities to secure loans for various purposes while retaining ownership and the potential for future growth of your assets. It’s a win-win proposition that offers flexibility, convenience, and financial peace of mind.
So, if you’re looking to meet immediate financial needs or seize new opportunities without compromising your long-term financial goals, consider having a look at the 5 things to know before getting loan against securities. It’s a step towards financial empowerment that can help you achieve your aspirations while safeguarding your investments.Therefore, apply for loan against mutual funds via smallcase today!
Frequently Asked Questions About Things to Know Before Applying for LAS
A loan against bonds or stocks or other securities is a secured loan that borrowers can obtain by pledging their shares as collateral. This means that the lender will hold the shares until the loan is repaid.
You should consider taking a loan against shares (LAS) when you have a short-term financial need and you don’t want to sell your shares.
If If the value of your shares declines while you have the LAS outstanding, the lender may require you to deposit additional collateral or repay some of the loan principal to maintain the required LTV ratio. If you are unable to do so, the lender could liquidate your shares.
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