Loan Against Securities – Meaning, benefits, interest rates & how it works

Banks and financial institutions offer different types of loans – collateral free loans and loans with collateral. What the latter refers to are loans that require the borrower to pledge an asset as security to reduce the lenders risks in case of default. Loan against securities (LAS) is one such type of loan, where you can pledge your shares, mutual funds, and life insurance policies as collateral for availing funds.

As a borrower, if you have immediate need of funds but lack assets like properties to pledge as security (e.g., for taking loan against property for business), you can leverage your investments in shares and stocks for getting a loan sanctioned. Read on to learn more about loan against securities in India, how it works, interest rates and more.

What are Loans Against Securities?

Loan Against Securities meaning – The idea behind loan against securities or loan against shares is to not liquidate your shares, stocks, mutual funds, bonds and debentures, when in need of funds, but to use them as collateral security for availing a bank loan.

Based on the lender, some of the key features of loans against securities are:

• Usually offered as an overdraft facility
• Interest in paid on the actual amount used
• Interest is for the period of loan usage
• Credit limit is based on the value of securities you pledge
• Lenders offer loans ranging for 50% of the value of the securities pledged

What financial securities can be pledged?

Based on the lender, securities that can be pledged include:

• Equity shares
• Demat shares
• Mutual funds
• Savings bonds
• Life insurance policies
• Fixed Maturity Plans (FMP)
• National Savings Certificates
• Kisan Vikas Patras
• Exchange Traded Funds (ETF)
• Gold deposit certificates (learn more about gold loans here)

Loan against securities interest – Know how EMI is calculated

Whether doing EMI calculation for business loans or for loan against securities, it’s always recommended to check with the lender on the actual EMI you will have to pay against your securities.

While the interest rate varies between lenders, here’s a quick look at the LAS interest rates offered by lenders:

Bank name	Loan Against Security interest rate
HDFC Bank	Equity – 10.60 % (avg.), 8.00% (Min IRR), 17.5% (Max IRR) Debt – 9.31 % (avg.), 6.7% (Min IRR), 16.3% (Max IRR)
ICICI Bank	LAS – 10.55% (Mean), 8.25% (Min.), 19.5% (Max.)
Axis Bank	LAS (digital) – 9.99% (effective), 6.50% (repo rate), 3.49% (spread over repo rate) LAS (physical) – 11.50% to 13.75% (effective), 6.50% (repo rate), 5.00% to 7.25% (spread over repo rate)
SBI	Shares & Mutual Funds – 11.05% (effective interest rate), 8.55% (1 yr MCLR), 2.50% (spread over 1 yr MCLR)
Bank of Baroda	LAS – 9.90% to 11.25% (effective) From BRLLR + SP + 0.50% to BRLLR + SP + 1.85% (repo rate + spread)
IDBI Bank	Loan Against Securities – ROI range – 10.10% to 11.10%

*Period – 1 July 2023 to 30 September 2023 (All borrowers are requested to check for the latest details with the respective lenders)

In most cases, loan against securities interest is calculated on the actual amount utilised and for the time it is utilised. In some cases, interest is calculated on a daily basis on the principal amount used. Foreclosure charges are usually not applicable on Loan Against Securities and Shares.

For Loan Against Securities EMI calculations, the following details will be required:

• Stock name
• Value of share
• Quantity pledged
• Share amount
• Share rate
• Total value

Based on the details provided, your lender will let you know of the loan amount offered to you and the EMIs you will have to pay based on the interest rates.

Top lenders to consider for Loan Against Securities

It’s natural to ask whether one should avail a loan against security. One of the advantages of loan against security is that high-value loans can be availed quickly and the sum can be used for different business contingencies and personal use (check borrowing T&C with banks). It also has flexible repayment plans and you can getting higher or at least better returns on your investments.

Listed below are popular lenders/banks offering Loan Against Securities, Shares, and Mutual Funds.

Loan against securities HDFC Bank

HDFC Bank offers different types of loans to borrowers for personal and professional/business purposes (read about HDFC Bank business loans). It also offers loan against securities based on the value of the securities you provide. Here’s an overview of the same.

Overview – Loan Against Security HDFC

Loan amount	₹1 lakh – ₹20 lakh
Interest rate cycle	·       Period of interest – 6th of the month to 5th of the next month ·       Interest debit and due – 5th of the month ·       Standing Instruction – 10th of every month ·       Interest charged on the actual amount used, calculated on daily outstanding balance
Eligibility	·       Indian resident or NRI ·       Business owner (e.g., sole proprietor, partnership firm, private limited company, etc.) ·       For Digital Loan Against Shares – HDGC Bank customer with current, savings and Demat account; Demand in single name; over ₹2 lakh in approved shares ·       For Digital Loan Against Mutual Funds – HDFC Bank savings account (single operation); active NetBanking; MF holding with CAMS as Transfer Agent (and Single)
Benefits	·       Low interest rates and processing charges ·       Document submission not required (basic KYC and business ITR) ·       Quick disbursal when applied via NetBanking (check T&C) ·       High loan-to-collateral value (up to 80%) ·       Facility to set limit (between ₹1 lakh – ₹20 lakh) ·       Facility to select securities for pledging and change them in future
Application process	For Digital Loan Against Shares, application can be done online: ·       Login to NetBanking and select shares ·       Accept agreement via OTP confirmation ·       Pledge shares with NSDL and CSDL online (OPT confirmation required)

*For more information please visit HDFC Bank official website: hdfcbank.com/personal/borrow/your-loans-against-securities

Loan Against Securities ICICI Bank

ICICI Bank offers Insta LAS or Loan Against Shares, Loan Against Securities and Loan Against Mutual Funds. You can raise funds without having to sell your securities and get an OD up to a certain amount. (Also read about ICICI Bank business loans)

Overview – Loan Against Shares (Insta LAS)

Loan amount (Insta LAS)	50% of the pledged shares, not exceeding ₹20 lakhs Overdraft facility loan
Interest rate	8.25% – 19.5% (For Q2 FY22-23, 1 July – 30 Sep 2023) Charged on the utilised amount and for the period utilised
Eligibility	·       Age between 18 – 75 years ·       Valid email ID and mobile number required ·       For MF units (Equity) – Only individuals can apply ·       For life insurance policies – Individuals, companies, sole proprietorships, HUFs, partnerships can apply
Benefits	·       Enjoy benefits of a current account ·       Get personalised cheque book ·       Avail facilities for mobile, phone and internet banking
Application process	·       Login to netbanking with User ID and password ·       Go to Investment and Insurance > Demat > Loan Against Securities

*For more information please visit ICICI Bank official website: icicibank.com/personal-banking/loans/loan-against-securities

Also read: Business loan for a sole proprietor

Loan Against Securities Axis Bank

Axis Bank is another reputed lender that offers Loan Against Securities apart from the convenient Axis Bank unsecured business loan. The Instant LAS facility is offered with overdraft facility and with no prepayment charges. You can offer your shares, mutual funds, life insurance policies and bonds.

Overview – Axis Bank Loan Against Securities

Loan amount	Up to 85% of the value of your securities (high value loan) ·       For equity – ₹25,000 onwards ·       For debt mutual funds – ₹1,00,000 onwards ·       For bonds – ₹50,000 onwards
Interest rate	9.99% onwards for online applications 10.50% for offline applications Pay interest on amount utilised
Eligibility	·       Existing customer (must have Current or Savings account) ·       Demat Account with Axis Securities ·       Demat holding in single name ·       Age above 18 years ·       For Debt MF – Individuals, HUFs, sole proprietor, partnership, private limited companies
Documents	·       Basic KYC documents ·       Holding statement (latest) for mutual funds ·       Pledge form
Application process	·       Login using internet banking or mobile banking ·       Select the securities to pledge ·       Confirm drawing power, charges and payment accounts ·       Confirm the loan by entering the OTP received

*For more information please visit Axis Bank official website: axisbank.com/retail/loans/loan-against-securities/

Loan Against Securities SBI

State Bank of India offers a wide range of loan against securities – Loan against shares, Loan against Mutual Funds, Loan against Sovereign Gold Bond, Loan against Time Deposit, Loan against NSC/KVP, Loan against Insurance Policies.

Also read: SBI business loans and SBI e Mudra loan

Overview – SBI Loan Against Shares

Loan amount	₹50,000 – ₹20 lakhs (can be used for personal and professional needs) Not to exceed ₹10 lakhs if used for subscribing to IPOs (read about NSE SME IPO) Offered as Overdraft
Interest rate	11.05% (8.55% for 1 year MCLR, 2.5% spread over 1 year MCLR)
Eligibility	·       Existing individual customer ·       Demat Account with SBI Cap Sec. ·       Demat holding in single name ·       Not available for NRIs
Repayment	Overdraft – 30 months

*For more information please visit SBI official website: sbi.co.in/web/personal-banking/loans/loans-against-securities/loan-against-shares

Overview – SBI Loan Against Mutual Funds

Loan amount	₹25,000 onwards For Equity/Hybrid/ETF MF – Max. up to ₹20 lakhs For Debt/FMP MF – Max. up to ₹5 crores
Interest rate	11.05% (8.55% for 1 year MCLR, 2.5% spread over 1 year MCLR)
Eligibility	Individuals over 18 years
Documentation	Visit SBI website for Application form

*For more information please visit SBI official website: sbi.co.in/web/personal-banking/loans/loans-against-securities/loan-against-mutual-fund-units

RBI guidelines for Loan Against Securities

The Reserve Bank of India (RBI) has laid down some guidelines all lenders must abide by when sanctioning Loan Against Securities India.

• These loans can be offered for personal reasons and for business emergencies
• Individuals can avail these loans to purchase new shares/securities and purchase in the secondary market
• Loan amount can be up to ₹10 lakhs (for securities with paper certificates) and up to ₹20 lakhs (for electronically held dematerialised securities)
• For loans above ₹5 lakhs, only Group I stocks can be used as collateral
• NBFCs can offer loans up to 50% of the loan-to-value ratio
• NBFCs have to inform the stock exchange if total value of collaterals (in the form of securities) exceed ₹100 crores

Note: Group I securities are those where in the last six months, these stocks have been traded for at least 80% days.

Is Loan Against Securities good for you? Benefits and more

It is understandable if you are tempted to ask if LAS is the right choice for you. After all, most lenders offer collateral free business loans usually for ₹30 lakhs – ₹50 lakhs. So, why pledge your shares, mutual funds and securities for availing funds?

Here are the top reasons and benefits of loan against securities and shares. Consider them to decide if this is the right option for you or not:

• Flexible utilisation of funds, in that the borrower can borrow the required funds and use it for different reasons (note – please check the list on usage of LAS with your bank)
• Pay interest on sum utilised and for the actual period of utilisation, i.e., since LAS in offered as an overdraft, borrowers can withdraw exact amount they need for the period they need and pay interest on it
• Low interest rates as funds are being borrowed against pledged securities
• Gain from assets even when pledged, i.e., based on market conditions, borrowers can make gains on their shares and MFs even when pledged