share
Nowadays many people invest in shares. If you also invest money in shares then there is good news for you. If you need money, you can easily take a loan against your shares. Mutual fund houses and many banks offer loans against shares in the form of overdraft facility. Therefore there is no fixed repayment or EMI for the principal amount. However, the loan tenure is for 1 year. You can repay the principal amount anytime during the loan tenure as per your convenience. You will be charged only interest on monthly basis which will be automatically debited from the registered bank account.
How does loan against shares work?
Loan against shares (LAS) is given to borrowers under overdraft facility. In this, loan is given against mortgage of equity holdings. For example, if shares worth ₹10 lakh are pledged, the borrower will get a loan up to ₹5 lakh as per the Reserve Bank of India (RBI) maximum loan-to-value (LTV) ratio of 50%. For mid-cap or small-cap stocks, LTV can fall as low as 30%.
What will happen if the value of the share falls?
For example, if a borrower fully utilizes an overdraft facility of ₹5 lakh against shares worth ₹10 lakh, and the value of the shares falls to ₹8 lakh, the LTV would cross the 50% mark. Is. To reinstate it, the borrower will have to either reduce the loan amount to ₹4 lakh or pledge another share worth ₹2 lakh to maintain the coverage. LTV is reevaluated on a daily basis.
How much interest is charged?
For example, if you borrow ₹5 lakh against shares at an annual interest rate of 10%, the daily interest rate will be around 0.03%, making the monthly interest rate 0.85%. This means your monthly interest payment will be around ₹4,246. Since LAS acts as an overdraft facility, interest is charged only on the amount utilized, providing additional flexibility to borrowers. Most lenders charge interest rates between 9-12%.
Will sell shares if interest is not paid
The lender can also sell the pledged shares if the borrower does not pay the interest for 60-90 days from the due date, depending on the loan terms offered by the lender. Experts say that loan against shares should be used only when there is a great need of money, because there is always a risk of losing your shares.
Latest Business News
