If you are looking to raise capital on a short notice and without much hassle, securing a loan against securities is a reliable option. Banks provide loans against a variety of securities like equity shares, mutual funds, RBI bonds and even life insurance policies. It is a good idea to understand the working of such loans before submitting a loan application to your bank.
The main benefit of applying for loans against securities is the approval time of such applications. More often than not the applications are approved within 24 hours and some banks provide instant approval through their online systems. Once you have pledged your security in favour of the bank, current account on your name will be provided by the bank. Services provided by the bank in accordance with the current account such as mobile and internet banking and ATM or debit cards are also included in the LAS portfolio. Banks offer a drawing power of upto 50% on the net asset value of the mutual funds and around 50-60% against equity-demat shares. The market value of your holdings is valued weekly and your withdrawal limit is adjusted accordingly.
The amount for which you can apply ranges from 50 Rupees to 10 crores and above depending on the bank’s terms and conditions. Usually interest is only applicable on the amount you withdraw from the current account and for the time duration you have borrowed the amount. Thus, you are liable to pay interest only on the amount you actually use from the total amount of the loan. Interest rates are mostly dependent on base rates specific to the bank. You can repay partial amounts of your loan any time during the discussed tenor. Facility is provided to pledge additional shares during the loan duration and you can swap scrips at any point of time.
Most banks do not offer this service to groups or partnerships. Be sure to read the terms and conditions of the bank before pledging your securities. With its many features and services, LAS proves to be an optimum solution for individuals seeking an easy and quick approval of their loan.
