How To Take A Loan Against Shares When The Market Is In An Uptrend?

Loans against shares is an excellent option for investors as it enables them to meet their short-term financial needs without putting their long-term plans at risk

How To Take A Loan Against Shares When The Market Is In An Uptrend?

The most important criterion to avail of this loan is to have a demat account

To meet financial emergencies, one of the ways a person can avail of loans if against shares. This type of loan is an excellent option for investors, as it enables them to meet their short-term financial needs without putting their long-term plans at risk. Loans provided by banks often come with a high interest rate and require investors to offer a physical possession like their house or other property as collateral. In the case of loans against shares, an investor can raise finances by leveraging their already bought and invested shares. By doing so, investors can monetise their market investments and make the most out of them.

How To Get This Loan

If you are an investor, the best option to avail of this loan is to opt for it from the same bank that holds your Demat account. By doing so, the process of expending your loan against your shares becomes easier and relatively fuss-free. Even if your shares are leveraged against the loan, you will continue to reap the benefits from your market investments.

Eligibility

The most important criterion to avail of this type of loan is to have a demat account from any financial institution. You can only pledge those shares as leverage that have been bought and invested in, in your name. Shares in another individual or organisation's name cannot be pledged as collateral. You cannot pledge the shares of any company that you are associated with at an executive level. In order to pledge your shares as collateral, you must submit a list of essential documents such as identity proof, proof of income as well as proof of residence.

Features Of Loan Against Shares

This type of loan is offered as a financial instrument that offers you a sanctioned credit limit depending on the value of the shares you have pledged. Hence, you, as a borrower, are free to either withdraw the entire sanctioned amount or take a part of it depending on your financial requirements at the time. Since the share market is volatile, the loan lending institution tends to conduct a periodic revaluation of the pledged shares. In case the change in market prices and the sanctioned credit amount exceeds the leveraged shares, you will have to either pay the difference in cash or cheque or may have to pledge more shares in order to make up for the amount difference.

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