Market shares are crucial financial instruments, especially in times of unprecedented needs. Faced with a cash crunch, you can easily monetise your investments to procure immediate funds. But instead of liquidating your securities, a loan against shares offers more convenience.
A loan against shares primarily comes under the broader category of loan against securities. Usually available in an overdraft facility, you can avail a loan against shares by pledging your shares as collateral.
A loan against shares is available for these investments:
- Non-Convertible Debentures
- Bonds and Government Schemes
- Equity/Demat Shares
- Mutual Funds Units
Additionally, you can also pledge shares of your blood relatives, including spouse, children, parents, and siblings who are above the age of 18 years. But in such cases, the blood relative needs to act as the co-applicant and sign the overdraft agreement.
Here is a comprehensive overview of how loan against shares works.
How does the loan work?
In a loan against shares, once you have pledged your shares, lenders provide an overdraft facility in your bank account. You will have the liberty to withdraw any amount of money from the account, and pay the interest only on the amount and time for which you borrowed the amount.
Case in point: suppose you took a loan amount of Rs. 1 lakh and drew Rs. 80,000 from the account. You took two months to return the borrowed amount. In such a scenario, you will only pay interest for two months on the borrowed amount, which is Rs. 80,000.
Moreover, you receive a loan amount based on the market value of the shares, with a fixed overdraft limit. Nonetheless, you can always increase or decrease liquidity in your account by pledging or removing any additional shares.
Additional Read: How Does a Loan Against Security Work?
The process from application to disbursement
Interested borrowers can easily apply for a loan against shares in two ways, namely online and offline. The eligibility criteria will differ from one lender to another, but most guidelines remain the same.
For loan approval, lenders may ask you to furnish the following documents:
For salaried and self-employed borrowers
- Address proof
- A copy of pan card
- Bank statements of the last six months
- Salary slips for the previous three months
- Income proof (ITR copy of the previous two years)
For non-individual borrowers
- Photo identity proof
- Address proof (passport/electricity bill/others)
- Income proof (ITR copy of last two years)
- Bank statements
Once the documents are verified, lenders will approve and disburse the loan amount. Lenders typically transfer the total amount within 2-3 days of approval. You will receive access to a current account with an overdraft facility and sanction limit. Free to withdraw any amount within the limit, you can use either net banking or ATM facilities to raise contingent funds whenever needed.
Additional Read: Top Things to Consider Before Applying for a Loan Against Securities
In need of immediate funds? Get a loan against securities from Tata Capital with no part prepayment or foreclosure charges for repayment convenience. You can quickly secure up to 20 crores within days from application. Benefit from our hassle-free, minimal documentation process and quick turnaround time. For more details, reach out to Tata Capital today!