Loan Against Securities Eligibility Criteria

A loan against securities can be vital when you want to borrow money while staying invested. A loan against securities can prove to be a handy source of financial assistance in times of need. In this blog, we will understand the loan against securities eligibility along with other key points that you should know of.

What is a Loan Against Securities?

A loan against securities (LAS) is a type of a secured loan in which one can borrow money by pledging their securities as a collateral. A loan against security allows borrowers to leverage their securities such as shares, mutual funds, bonds, or insurance policies to avail a loan.

Lenders offer a certain percentage of the market value of the securities as a loan. Upon repaying the loan, the security is unpledged and the ownership is returned to the borrower.

For example, an individual has shares of ABC Ltd worth Rs.5 lakh. He faces an unexpected medical emergency and is required funds immediately. Instead of selling the shares, the individual chooses to apply for a loan against securities with a leading bank.

The lender values the shares and verifies the submitted documents. The bank offers a loan of up to 50% of the current market value of the shares. This allows the borrower to avail a loan of Rs.2.5 lakh without selling his shares. After he repays the loan, the shares are unpledged and the ownership is returned back to the borrower.

General Eligibility Criteria for Loan Against Securities

Before applying for a loan against securities, it is important to know if you are eligible to avail one. It is also worth noting that the eligibility criteria varies from lender to lender. Make sure to check the specific eligibility requirements of the bank or financial institution you are planning to borrow from.

Age Requirement

The general eligible age for LAS is 21-65 years. However, some lenders may offer a loan to people above the age of 18 to 80 years old.

Employment Type

To be eligible for a loan against security, you need to be salaried, self-employed or be a business owner (sole proprietorship, private limited company, public limited company, partnership firm, or private trust)

Residency

You need to be an Indian citizen to avail a loan against securities. Many lenders also allow NRIs to take a loan against securities.

Credit Score

Since a loan against securities is given against a security, the credit score requirement is typically low.

Relationship with Lender

Many lenders require the borrower to have a demat account or brokerage account with them. It is also important to check the depository with which a demat account should be opened.

Eligible Securites That Can Be Pledged

One of the most important aspects of a LAS is to know which securities are eligible for loan against securities.

Shares

Equity shares of listed companies are eligible for a loan against securities. Lenders typically have a list of approved shares which can be pledged.

Mutual Funds

Most lenders accept a large number of mutual funds as collateral for a loan against security. This includes equity, debt, and hybrid funds. ETFs are also eligible.

Bonds & Debentures

Approved bonds are eligible for a loan against security. Lenders may require the bonds to be in dematerialised form.

Insurance Policy

Insurance policies such as unit-linked insurance plans (ULIPs) and endowment plans that have a surrender value are eligible for LAS.

Documents Required for LAS

Here are some essential documents you should keep handy while applying for LAS:

• PAN
• KYC Documents such as Aadhar, driving license, Voter ID
• Latest Statement of Holdings for Mutual Funds
• Client Master List for the relevant Demat Account
• Although lenders usually do not ask for income proof, in some cases your bank statement and income tax returns might be required.

Loan Against Securities vs Loan Against Mutual Funds Eligibility