Can I Continue to Earn Dividends on Pledged Shares?

Typically, yes, you can continue to earn dividends on pledged shares. When you pledge shares with a financial institution as collateral for a loan, ownership rights usually remain with you. So, you continue earning dividends or other benefits declared on such shares.

However, there may be certain conditions imposed by the loan provider:

• The dividends earned can be credited to your linked bank account or demat account, depending on the agreed-upon terms.
• Generally, loan providers can use dividend payouts towards loan repayment instalments if you face difficulties or default.
• Sometimes, the dividend amount may be retained in an escrow account as additional collateral for the loan during the tenure. This amount and accrued interest are released after you repay the loan.
• Financial institutions can also negotiate to receive dividends directly from the company towards principal or interest dues. However, ownership is not transferred.

Loans against shares present certain advantages that could make them a favourable funding mechanism for some.

• Earning dividends supplements your income even as shares remain invested.
• You can use dividends to service loan-equated monthly instalments (EMIs) or reinvest to compound returns after closure.
• Opting for dividend payouts instead of stock reinvestments can help reduce pledged value vulnerability to market fluctuations.