If a person is in need of urgent funds, then they must invest an important sum of capital in the stock market. One must know they can avail a loan by pledging the respective shares. If such a case is true, they can take out A Loan against Shares, a kind of secured loan wherein the shares typically act as collateral. Lenders generally provide an increased loan amount, levy highly competitive rates of interest, along with providing flexible tenures of repayment. In addition, one can only have to pay a rate of interest on the loan amount they utilize as well as not the overall principal loan amount. Read on to know more about what shares are, how to avail a loan against shares, the predominance of a DEMAT account as well as how one can open an online DEMAT account. Low-interest personal loans are usually taken by small scale business owners to help them up-scale their business.
Understanding Shares
Shares are understood as the units of a company’s capital. Companies often let public investors purchase the shares to increase money for expansion as well as the business growth, etc. When a person purchases a company’s shares, one would essentially become part-owner or shareholder of that respective company.
Assume that a person has bought 20 shares of a respective Company XYZ at Rs 100 per unit. A few days later, a friend tends to purchase 35 shares when the per-unit price of the share falls to Rs 80. While both individuals may have invested a different amount and own a different number of share units, a person is both deemed shareholders in the company. A person can also continue to remain a shareholder until they sell off the shares. Low-interest personal loans are easily availed for the business owners to help them upscale their business.
How to Get A Loan Against Shares?
A Loan Against Shares is typically considered a secured loan since it needs a person to pledge for existing shares along with the securities as collateral. In order to obtain such a loan, a person must first check with the lender if they provide such a facility, as only certain banks in India provide Loans Against Shares. In addition, one must ensure to have an active as well as the valid DEMAT account with a trustworthy reputed Depository participant (DP). The DP should be related with either one of the two central depositories in India, which is the National Security Depository Limited (NSDL) or the Central Depository Service Limited (CDSL).
Once the lender usually agrees to sanction the loan, they should decide which kind of shares to utilize as collateral, keeping in mind that lenders offer Loans Against Shares of select, reputed companies only. The lender then afterwards releases the amount of loan, which a person can utilize to finance the needs. With Loan Against Shares, a person must not be required to sell the shares. The prices of the pledged shares continue to rise or fall with the ever changing market conditions. Low-interest personal loans are unsecured loans with flexible tenure to help people overcome financial constraints.
Loan Against Shares – Eligibility Criteria
A person can avail a Loan Against Shares upon fulfilling the following eligibility criteria.
Age: the age of a person must be varied in the 21 to 70 years age group.
Credit Score: the CIBIL or credit score should be of the score 701 and above.
Nationality: a person can be a Resident or Non-Resident Indian
Reasons to Opt For Loan Against Shares
The most alluring advantages of pledging the shares to avail loans is the increased amount of loan of up to RS 5 Crore is for exclusively Debt Mutual Funds for shares, which is of the maximum limit is of the range Rs 20 Lakhs only.
Funds can be utilized to meet contingencies as well as the personal needs and requirements only.
Following purposes will be particularly prohibited for most Resident Individuals: –
As for speculative or other kinds of anti-social purposes.
For the purpose of acquiring or retaining a controlling interest in the company/ companies or to mitigate or retain inter-corporate investments.
In order to subscribe to various schemes of Mutual Funds/ Purchase of shares/ debentures/ bonds etc.
Following purposes will be particularly prohibited for Non – Resident Individuals: –
Loan amount must not be credited to NRE/ FCNR account of the borrower
Amount of loan shall not be easily remitted outside India
Capitulating or carrying on agricultural/ plantation activities or for any other investment in real estate business
Business of Chit Fund Company
Nidhi Company
Trading in Transferable Development Rights abbreviated as (TDRs)
Investments in capital market to involve margin trading as well as the derivatives
In addition, Loan Against Shares is just like an overdraft facility, where one can pay rate of interest only on the used amount. The shares one pledges are not usually sold off. Post a person repays the loan, the lender usually returns their shares, as well as one can continue trading.
Loan Against Shares is a secured loan, thus, one enjoys alluring rates of interest. If a person defaults on the payments, the lender simply sells the shares to recover the amount of loan
Is a DEMAT Account Necessary for Loan Against Shares?
Yes. one must hold a DEMAT Account if an individual wants a loan against their shares. If a person shares are not in the dematerialised or electronic form, they can potentially convert them by opening a DEMAT account with the broker or lender.
A dematerialised account or a DEMAT account holds shares and other securities in electronic formats. This usually makes it more accessible for the shareholder to store massive volumes of shares of various companies as well as conveniently transfer them whenever required.
The lender might also be a depository participant as well as to provide loans against the shares one holds in their DEMAT account facilitated by them. As the bank will grant them a loan by marking a lien on the shares, that is the bank obtains the right to sell the shares if a person are unable to repay the loan.