Everything You Need To Know About Loans Against Shares

There are times when people need urgent financial help. They often invest their money to receive respectable returns, and a high-risk taker might purchase shares to increase their profits. During such crises, it could be smart to sell the asset unless the price is favorable. In these situations, the most sensible action is to mortgage the shares and obtain a loan. The majority of nationalized banks provide a loan against a share. The borrower’s shares now become an underlying asset in this secured loan.

Loans against Shares

● Loans against shares are loans made against financial assets such as stocks, mutual funds, or life insurance policies. 

● The financial assets serve as a guarantee or collateral for the bank.

● It prevents hasty stock sales.

● The amount of loan one can put on shares is determined by the number of shares they possess and the bank from which they borrow.

How they work

Equity shares or preference shares kept in Demat form are the collateral for loans against shares, which are secured loans. The loan is presented as a percent of the market value of the borrower’s shares in their Demat account. These loans have a relatively small loan amount and are for short-term needs. They could, however, occasionally have longer terms and greater borrowing amounts. The loan term may be extended individually and range up to 15 years. Several banks and NBFCs provide this kind of loan up to Rs. 1.5 crore.

The market worth of the shares determines the loan’s worth, and a loan of up to 50% of that value is available. The loan repayment terms are variable. The borrower can pay back the principal and interest or only the interest as per the loan against securities interest ratesThe principal gets deducted from the underlying asset. In contrast to conventional loans with a set EMI, the borrower is also permitted to make irregular payments toward the loan over its term.


● A fixed proportion of the market value of the shares kept in Demat form makes up the loan value.

● Equity shares, ESOPs, preferential shares, and any other kind of equity qualify as securities for a loan against a share

● Shares must be liquid, tradable, and transferrable.

● The bank must accept a pledge of the client master list.

● There is flexibility in the repayment terms for these loans.

● You can dispose of the underlying stocks to fully pay off the loan in case of a default.


● A loan against securities interest rates is less than a personal loan.

● simple and speedy loan processing

● It is simple to calculate a share’s market value.

● Easily accessible through nationalized banks and financial organizations

● Adaptable repayment terms

● Available loan types include demand loans and overdraft facilities.

● When using an overdraft facility, the debtor must pay the interest only (on the money they have withdrawn and for the time they have done so).

● The applicant’s credit score is not a factor in determining loan eligibility.

Eligibility and Purpose

● Anyone between 22 to 65 years old may apply for the loan. You must use the Demat holder’s name to apply. 

● You may avail of the loan in either name if a Demat account is held jointly.

● The duration of the loan, which is normally short-term, is determined by the share market price. 

● Most banks provide 50% of the market price as of the borrowing date. 

● The bank may ask for more shares to be pledged or sell its stake and pay off the remaining loan in full if the market worth of the shares comes close to matching the loan amount. 

● These loans are available for several purposes, including vacations, education, medical costs, etc. 

● Additionally, they are employed for various investments such as public offer subscriptions, rights issue subscriptions, etc. 

● The overdraft facility is useful when you cannot calculate the exact price.


In conclusion, a loan against a share is very secure. This type of loan generally has a variable interest rate; you can obtain credit ranging up to Rs. 1.5 crore. Also, you can gain several advantages with flexibility in switching securities, and the application process is simple and hassle-free.

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