Securities are important assets which you either invest in as asset for future emergency use or for saving income tax. In case of urgency you can use these securities as mortgage and take loan on securities. The bank or financial institution from where you take the loan provides you with an overdraft facility of value which is determined on the basis of the value of the securities pledged. You will be expected to open a current account so that you can withdraw money from the bank whenever you require. In this case, you will be needed to pay the interest only on the amount you have withdrawn from the current account.
This is one of the best options as in this process you are not selling your securities, but only pledging it in favor of the bank/finance company.
Securities Against Which You Can Borrow A Loan
- Mutual Funds Units
- Demat Shares
- Fixed Maturity Plans or FMP
- Exchange Traded Funds or ETF
- Insurance policies
- NSC/KVP that are in Demat format
- Savings Bonds
Eligibility Quotient for Different Securities
- Demat shares: Under these securities only individuals are eligible for applying. Companies, Hindu Undivided Families, partnerships or sole proprietors are not included. The loan is made available only on the approved list of scripts.
- Mutual Fund units: If you are pledging only equity oriented funds only individuals are eligible for applying. But if you are pledging debt funds/ETF/FMP everyone including HUFs, companies, sole proprietor, partnerships is eligible. You will be given loan only on the approved Mutual fund or schemes. This approval is given by the bank or finance company.
- Insurance policies: In this case everyone is eligible and the loan is granted only on the policies that are approved by the loan giving banks or finance company.
- GOI bonds: Only HUFs and individuals can apply.
- KVP/NSC: Partnerships, HUFs, companies and individuals can apply.
Common Eligibility Conditions For Loan Against Securities
- You must be in between the age of 21 to 75 years.
- You should be a subscriber to landline telephone either at home or office.
Advantages of Taking A Loan on Securities
- Loan on securities gives you the flexibility to pick up only required loan amount from the current account. This ensures that you pay interest only on the amount you have needed.
- You can pledge the securities anytime and within a single day you are provided with the amount. This instant liquidity is the greatest feature of loan against securities.