5 Things to Know About Loan Against Demat Shares

Whether it be to meet financial emergencies or fulfill certain short-term or long-term goals, availing a loan has become easier than ever before. But most loans provided by banks are accompanied with high interest rates. Moreover, they often require you to place your cherished possessions or investments as collateral, making them a risky option.

However, there is another means to avail a loan that can help you make the most of your share market investments - loan against demat account shares.

How does loan against demat shares work?

Loan against demat shares help you monetise your investments in shares, instead of selling them off for capital. Loan against demat shares require no collateral or additional securities apart from the shares already in your demat account.

If loan against demat shares sounds like an appropriate lending option for you, here are 5 things you can benefit from knowing about it:

Same financial institution for loan and demat account:

Loans against demat shares provide an ease of borrowing since it is your hard- earned shares that help you raise the necessary capital. However, there is another way this loan can become even more convenient.

If you avail your loan from the same financial institution that holds your demat account, the disbursal of your loan against demat shares becomes seamless. In essence, you are simply borrowing the funds from the financial institution as it pledges your shares as security against the received funds.

You can ensure this ease of disbursal by making sure to avail a demat account India with a reputed financial institution that provides convenient loans against securities.

Benefits of loan against demat shares:

To avail loan against demat shares, your shares are essentially held as collateral. Therefore, as an investor in the share market, you might be concerned what availing a loan against your demat shares means for your overall investment. In this regard, you can rest assured that this loan is still beneficial.

While your demat shares are pledged as security for the loan, you will still continue to receive the various benefits of your share investments. This includes receiving and retaining not only your dividends, but also your due bonuses and rights.

What are the eligibility criteria:

In order to avail a loan against the shares in your demat account, you must first ensure that you are eligible for the same. Here are some of the loan’s most important eligibility criteria:

  • You must be in the age range of 18 to 65 years
  • Only the shares in the name of individuals can be pledged. You cannot pledge shares in the name of minors, HUFs, NRIs and corporations.
  • You will also be required to submit certain essential documents. These include identity proof, proof of address, proof of income and a statement from your DP.
  • You cannot pledge the shares of a company of which you are a Director or a Promoter.

What are the features of loan against demat shares:

The loan you avail against the shares in your demat account comes with various features that set it apart from other forms of loans. Here are some of the most important features you should know about:

  • Your demat shares can be pledged to avail loan amounts of up to Rs. 20 lakhs.
  • Loan against demat shares are often cheaper than personal loans and offer interest rates in the range of 12-18% p.a.
  • Loan against demat shares do not require guarantors. Moreover, they typically do not have any prepayment charges.
  • The value of the pledged shares is assessed on a weekly basis.

What to avoid:

While availing loans against the shares in your demat account is a convenient option, it is important to utilise these funds responsibly.

Some share investors are tempted to avail loan against their demat shares only to then reinvest the money back into the market. If the market runs a bearish trend, this move can result in considerable loss. Therefore, it is recommended to avoid this strategy.

Instead, it is best to utilise the loan amount for financial emergencies or to meet financial goals in the near future. These include expenses for household, wedding expenses, education expenses and capital for business investments.

Conclusion

By availing a loan against your demat shares, you too can avail the borrowing benefits of your share market investments. The key is to find the right financial institution that can provide you with both a convenient demat account, as well as the facility to avail a loan against your demat shares.

To that end, you can consider opening a trading and demat account India with IIFL. IIFL offers its investors an all-in-one account through which you can make a variety of investments via a single platform. Moreover, they also offer investors the beneficial service of availing a loan against securities, including demat shares.

Open Demat Account at IIFL