If you are interested in the stock market, it may have crossed your mind to opt for a personal loan to invest in it. If so, you aren’t alone. When it comes to investments, nothing beats the returns stocks offer. As a result, equity is one of the most popular investment options. However, to make a substantial profit, you must have a large enough cash reserve and the ability to take risks.
That’s why many investors prefer taking a personal loan for stock market investment. But how practical is this idea? Let’s compare its pros and cons to find out.
Pros of taking a loan for stock market investment
A personal finance option offers numerous benefits to stock traders, including:
- Tax benefits
With a loan, you can essentially hit two birds with one stone. Firstly, you can enjoy the tax concessions granted under section 80C of the Income Tax Act. Second, you can also claim tax deduction available on the loan’s interest payments.
Additional Read: Can We Get Tax Benefit on Personal Loan in 2021?
- Counter EMIs with profits
Needless to say, a loan will come with its own set of expenses which include personal loan interest rates and other charges. But the good news is, given the profit potential in the stock market, you can quickly close off the EMIs and still end up with a lot of gains. However, you must be wise about where you put your money, as the stock market is rife with risks.
Additional Read: Ways to Manage your Personal Loan EMI Payments
- Larger investment corpus
When you take a loan, you have access to a higher investment amount than usual. Also, you won’t have to cut down on your expenses and tap into your savings for enjoying high returns from stock trading. You can keep your rainy day fund intact for emergencies.
Cons of taking a loan for stock market investment
While there is no denying that loans come with a range of benefits for stock traders, you must also look at the other side of the coin to get the complete picture. There is an inherent risk associated with taking loans for stock trading.
If you fail to make the right investment choices, the debt can quickly backfire. Negative returns will not only affect your investment portfolio but also make it harder for you to repay the loan. So it’s advisable to have a sound knowledge of the market before applying for a personal loan to invest in the stock market.
It’s advisable to opt for a loan only if you know the market, have done your research, and know what you are getting into. Additionally, your choice of lender should also be sound. Some might offer unfavourable loan terms or impose hidden charges. At Tata Capital, you never have to worry about this.
Opt for our personal finance options to enjoy complete transparency, attractive interest rates, and flexible repayment options.
Start investing today by checking your personal loan eligibility on our website!