A loan as we know is the sum of money that we borrow from banks or other financial institutions to financially manage our planned or unplanned events. In doing so, we incur a debt, which needs to be paid back within a given period. Whatever be our reasons to borrow, taking a loan today has become easier than ever before and we have several efficient options to choose from.
One popular means is to avail of a loan against your Demat account shares. It is best to utilize the loan amount for financial emergencies or to meet financial goals shortly. These could be your expenses for household, wedding expenses, education expenses, and capital for business investments.
Let’s learn more about this.
What is a loan against Demat shares?
When you choose to take a loan against your Demat shares, you’re monetizing your investments without having to sell them off. The best part about a loan against demat shares is that no collateral or additional security is needed, other than the shares that are already in your Demat account. The bank will grant a loan by marking a lien on the shares it holds in the demat account. This way you make the most of your share market investments, as even when they are pledged with the bank / financial institution as security, you will continue to benefit from the rising stock prices.
Loans against the demat shares also give you comfort in borrowing since it is your hard-earned shares that are now even working for you by raising the capital that is required.
How does a loan against Demat shares work?
1. It is easiest to take a loan against demat shares if you take it from the same bank with which you have your demat account, as the loan process is simpler and disbursal faster.
2. No additional security is required. Only your shares are pledged.
3. A loan against Demat shares consists of a 50% margin depending on the underlying security.
4. The dividend will continue to be credited to your bank account even though shares are held in the lien.
5. During the period of the lien, you even continue to enjoy the benefits of rights and bonus issues.
6. The bank that is also a depository participant may offer pre-sanctioned loans on shares held in the demat account since it is easier for the bank to execute such loans.
What are the eligibility criteria?
To avail of a loan against the shares in your demat account, here are some of the essential eligibility criteria:
1. You must be between the ages of 18-65 years
2. Only the person in whose name the shares can pledge the shares. Minors, NRIs, HUFs, and corporations cannot pledge shares that are held in their names
3. Some documents that are required to be submitted include proof of address, a statement from your DP, identity proof, and proof of income.
4. A director or promoter of a company cannot pledge the shares of his company.
What are some features of loans against demat shares?
1. You can avail of a maximum of Rs. 20 lakhs as a loan against your demat shares.
2. A loan against demat shares comes at a lower interest rate than a personal loan.
3. There is no loan prepayment charge.
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