Being an investor in the stock market in India, you get a lot of advantages. One of the many benefits that you get to enjoy is being able to avail a loan against securities held in your demat account. You can essentially pledge your stock holdings with your stock broker or a financial institution to avail a loan to cover your emergency financial needs.
That said, before you go ahead with this, there are a few things that you should know about. Here’s a quick look at the top 5 factors that you would have to consider when making use of this facility.
1. Financial Institution
The first thing that you should know about getting a loan against stock is that not all financial institutions or stock brokers offer this facility. Therefore, it is crucial to look for and choose the right institution. When going about the search, focus on availing loans from institutions that offer lower rates of interest. This will help keep your financial obligations to a minimum.
2. Eligibility Check
Before finalising a financial institution with whom you would like to avail this facility, it is a good idea to take a look at their eligibility criteria first. The criteria tends to be different for different institutions and so it is essential to be aware of whether you satisfy their requirements before applying for the facility. This will help ensure that the process goes on smoothly without any hassles whatsoever.
3. Amount of Loan
The next thing that you should be aware of when availing a loan against securities, is the maximum amount of loan that you can get. Generally, since the value of securities like shares and bonds tend to change on a daily basis, lenders usually offer only a percentage of the pledged securities as loan. The amount of loan that financial institutions provide usually ranges from 60% to 80% of the value of the securities pledged.
4. List of Securities
Not all lending institutions accept all kinds of securities as collateral. For instance, some lenders may be willing to take up mutual funds units as collateral, while others may not. So, depending on the entity that you apply with, the list of accepted securities may vary. Therefore, when applying for a loan against stock, remember to first check whether the securities that you hold can be pledged as a collateral with your preferred financial institution.
5. Fees and Charges Applicable
And finally, lending institutions typically levy certain fees and charges for availing a loan against securities. They can be anything from processing fees to pledging fees. Some institutions even charge pre closure fees for prematurely closing the loan. And so, it is important for you to take note of the various fees and charges applicable on such a facility before going ahead with the process. This way, you will be able to make an informed decision.
With this, hope you’re now aware of the things that you should take into account when availing this facility. On the other hand, if you’re someone who is interested in investing in the share market of today, having a demat account in your name is of paramount importance. Get in touch with Motilal Oswal right away to open a demat account for free within a few minutes.
Related Articles: Follow these 5 Expert Advices to Get Started with Investing | 4 Investment Mistakes New Stock Market Players Must Avoid at All Cost | 5 Rules Every New Investor Must Know Before Investing | 10 common mistakes made by SIP investors | 4 Smart Must-Follow Investment Tips for Beginners in India