• Loan Against Shares

    Loans against shares/securities are monetary loans that are provided against listed securities like bonds, shares, insurance policies or bonds. These loans are very useful in times when cash is needed urgently for any personal or business requirement. Loans against shares are a popular form of getting short or long term loans and the repayment period extends to up to 36 months. The list of securities against which one can get a loan will differ from lender to lender and loan amount can go up to Rs.20 lakh.

    How to get Loan on Shares

    Loan against share is offered against listed securities. Investors can borrow funds against existing investment portfolios to meet investment and liquidity requirements. The money that the borrower has invested in can get him a loan. Most often people invest in shared as it is a popular method of short and long term investment. The securities acceptable differ from lender to lender and the lenders usually have a list of securities that they choose from. It is simply to ensure that the lender will not incur loss.

    Eligibility criteria for Loan against Shares

    Loan against shares is offered to the following persons:

    • Traders
    • Industrialists
    • Businessmen

    Features of Loan against Shares

    The features of loan against shares are as follows:

    • They the loan provided against shares include stock exchange securities.
    • The security provided acts as a protection for the loan.
    • If the borrower fails to make payment, then the lender can dispose the security and realize the debt.
    • Secured advances offers a sense of safety to the lender as the amount lent can be regained.
    • Loans offered against shares include stock exchange securities such as government securities, corporate securities and debentures.

    Stock Exchange Securities

    The Stock Exchange Securities includes:

    • Securities that are issued by the central and state government
    • Bonds and debentures issued by Semi-government
    • Shares and debentures issued by joint stock companies

    Government Securities includes

    • Stock:

      Stockholder gets a certificated that indicated the amount of loan held by him. The certificates issued can’t be endorsed. The title of the stock passes on to the new holder after completing transfer registration to the new holder. Lenders offer loans against such certificates.

    • Promissory notes:

      This is a promise made by the President of India (Central Government) or by Governor of State to pay the specified amount to the holder of the note or to whoever it is endorsed to. This is a negotiable instruments and the title can be passed on by endorsement and delivery.

    • Bearer bonds:

      This certificate states that the bearer is entitled to the amount on a specific date. These bonds possess ownership and the title can be transferred by delivering the document.

    Corporate securities include equity shares, preference shares and creditorship securities.

    Debentures is a document issued by a company as an evidence of debt. This certificate carries a predetermined rate of interest which is payable at regular intervals. The principal amount is to be paid at maturity of the certificate.

    Advantages of offering shares as Security

    To offer shares as security is best option as:

    • It can be easily realized in the event the borrower fails to pay the debt.
    • The shares are stable but in times of recession the value of the share might fluctuate.
    • The formalities involved are limited, therefore making it an easy and simple process to transfer.
    • The market value of the share is easily determined.
    • Debentures, bearer bonds, promissory notes and share warrants are totally negotiable.

    Banks offering Loan against Shares in India

    Following banks offer loan against shares in India:

    • Axis Bank
    • HDFC Bank
    • State Bank of India

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