What Is a Loan Against Shares and How Does It Work?

A loan against shares enables borrowing money by providing the financial institution with owned stocks or equities as pledge security. It provides liquidity by using your shareholding as collateral without requiring you to sell your investments. The market value of the pledged securities determines the sanctioned loan amount.

Banks, many Non-banking Financial Companies (NBFCs), and other financial institutions offer this facility. Here’s an overview of how it works:

• Eligibility: Applicants are generally required to hold a demat account with sufficient shares to pledge as security. Loan providers typically finance up to 50% of the market value of the pledged shares.
• Interest Rates: Rates usually range from 8% to 20% per annum, depending on the loan provider, applicant's profile, market risks, and chosen tenure.
• Tenure: Repayment periods generally range between 1 and 5 years, allowing repayment through Equated Monthly Instalments (EMIs). Shorter tenures may speed up approval.
• Collateral Margin: Loan providers often include extra margin buffers for stock value dips.
• Documentation: Essential paperwork typically includes ID/address proof, demat account statements, salary proofs, and ownership documents of pledged securities.
• Top-up Loans: If share prices increase over time, applicants may access top-up loans to reinstate collateral and maintain margin levels.