Have you ever heard of loans against securities? If not let us quickly discuss loans against securities. Loans against securities are financial products that allow investors like you to borrow money by pledging their financial assets as collateral. These loans offer a way to unlock the value of your investments without having to sell them, thus maintaining potential capital appreciation and dividend income. Let now get an overview of the various types of loans against securities:
1. Loan Against Shares
A loan against shares is a type of loan that allows you to borrow money by pledging your equity shares as collateral. The loan amount is typically a percentage of the market value of the shares.
Features Of Loan Against Shares:
- Loan-to-Value (LTV): Loan-to-Value refers to the loan amount that you can get on the value of your shares. Generally, the LTV value is 50% of the market value of the shares.
- Interest Rates Charges: A loan against shares is given to you by keeping your shares as collateral. This generally reduces the risk which lowers the interest rate charge of your loan.
- Usage: In contrast to home loans, vehicle loans, etc, the funds that you get from a loan against share can be used for personal, business, or any type of need except for speculation activities.
2. Loan Against Mutual Funds
In loans against mutual funds, investors can pledge his or her mutual fund units to obtain a loan. He or she can use both equity and debt mutual funds as collateral for obtaining the loan.
Features:
- LTV: The LTV for loans against mutual funds is 50% of the NAV (Net Asset Value) of the mutual fund units.
- Interest Rates: The interest rate that lenders charge in loans against mutual funds is generally lower than personal loans.
- Usage: Funds that you get from a loan against mutual funds can be used for any purpose, including personal expenses, education, or business needs.
Check Your Mutual Fund Loan Limit in 2 Minute
3. Loan Against Fixed Deposits (FDs)
Fixed deposit is one of the most loved saving instruments in India. They can be used as collateral to secure a loan. This type of loan is often preferred due to its low-risk nature of fixed deposits.
Features:
- LTV: You can get up to 90% of your Fixed Deposit amount.
- Interest Rates: Typically the interest is a few percent higher than the FD interest rate.
- Usage: The funds that you get from a loan against a fixed deposit can be used for various personal or business purposes.
4. Loan Against Bonds
Bonds refers to loans that you give to institutions like government or companies. With the launch of RBI Retail Direct – a dedicated platform for investing in government bonds, the size of retail investors is rising in the Indian bond market which gives you an excellent platform to get a loan against bonds at low interest due to their safety.
Features:
- LTV: The LTV of bonds varies depending on the type and rating of the bonds, generally, the haircut on binds is up to 15% – 20%.
- Interest Rates: The interest rate on loan against loans against bonds depends on the creditworthiness of the bonds.
- Usage: Funds received from loans against bonds can be used according to your needs.
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Conclusion
Loans against securities are a useful financial tool that provides liquidity while allowing you to retain your investment portfolio. You get lower interest rates and flexible repayment options on loans against various securities thus, making them an attractive option compared to unsecured loans. However, it’s important to understand the risks, especially with market-linked securities, and to carefully consider your financial situation and needs before opting for such loans. To know how much loan you can get on your investment, contact neoble team now.