All About Loan Against Securities (LAS)
Sometimes, unexpected financial challenges arise when you require urgent funds and need a loan. If you are an investor, you can use your securities as “collateral” and get a loan against it. Yes, you heard that right! You can avail of a loan against securities (LAS) without liquidating your investments and retaining ownership.
Here’s a comprehensive guide to help you understand how loans against securities work, their benefits, and considerations before opting for one.
What is Loan Against Securities (LAS)?
A loan against securities is a type of secured loan where the investor pledges their securities to get a loan from a lender. The loan amount is calculated according to the holdings’ market value, commonly referred to as the Loan-to-Value (LTV) ratio.
The interest rates for LAS generally vary between 8% to 15% per annum, depending on the type of NBFC (Non-Banking Financial Company), the borrower's credit score, and other prevailing factors.
Companies | Type | Bidding Dates | |
| SME | Closes 31 Jan | ||
| Regular | Closes 31 Jan | ||
| Regular | - | ||
| Regular | - | ||
| Regular | - |
Benefits of Loan Against Securities (LAS)
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Retain Ownership
The best part about getting a loan against securities is that the borrower only pledges the securities, not sell them. Thus, the portfolio ownership remains to the investor and continues to enjoy stock-related benefits, like earning dividends, bullish market advantage, etc.
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Flexible Repayment Options & Loan Tenure
Borrowers can enjoy flexible loan tenure and repayment options, such as interest-only payments, partial repayments, or even foreclosing the loan before the tenure ends.
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Lower Interest Rates
Because a loan against securities is a secured loan, it offers lower interest rates than unsecured loans, where the rates of interest go up to 30% or more.
Things to Consider Before Opting for a Loan Against Securities
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Market Volatility
The value of pledged securities can fluctuate with market conditions, which might affect the LTV ratio and result in margin calls.
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Eligible Securities
Not all securities are eligible for pledging. Lenders usually have a list of approved securities, so verify if your portfolio includes eligible securities.
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Securities Ownership
Even though the ownership of the securities remains with the investor, they can’t sell or transfer them until the loan is repaid.
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Avoid Using LAS For Long-Term Needs
Use LAS only for short and medium-term needs and avoid using it for high-risk investments. Always ensure you have a repayment plan in place. If you fail to meet the margin calls or repay the loan, the lender may sell your pledged securities to recover the amount.
How To Get Broker Pledge Request Form (PRF) From Groww?
- If you are applying for a Loan Against Securities (LAS) through a bank/NBFC and need to generate a Broker Pledge Request Form (PRF), simply reach out to Groww at [email protected]. We will assist you by providing the required form.
- Once you receive the form, fill it out, sign it, and email it back to us for verification.
- After verification, as per compliance norms, a physical copy of the signed form will be required.
- After we receive the physical form, we will do a televerification.
- Once the Demat account holder confirms the pledge proceedings, we will process the pledge request promptly, enabling you to secure the LAS through your bank or NBFC without any hassle.
Note: In case of more than 20 ISINs for the pledge, the borrower needs to attach multiple forms and annexures with details.
Conclusion
A loan against securities is a great option if you need quick funds and have a well-diversified portfolio of eligible securities. It is ideal for short-term needs, but it’s important to be mindful of the risks associated with market volatility and margin calls.