Loan against securities—A good option to borrow

You are in need of money, but your money is stuck up in various investments such as shares, bonds, debentures, mutual fund units, insurance policy, etc. You have built up your portfolio of investments assiduously over the years and you do not wish to liquidate these investments prematurely as doing so would lead to decline in your returns on these investments. So, what do you do? The answer is simple—go for a loan against securities!

A loan against security (LAS) is a loan given to a borrower against the pledge of a security. The LAS could be availed against pledge of one or more securities, depending on the amount of loan required. The securities that could be offered as collaterals to avail a loan include shares, bonds, debentures, mutual fund units, insurance policy, National Savings Certificate, etc. The loan can be availed for a period of one year, but the period can be extended if needed.

Since LAS is a secured loan, the rate of interest charged by a bank or financial institution is quite reasonable at 12-15 per cent per annum. The loan applicant has to be between 18 and 65 years of age and has to pay a processing fee of 2 per cent of the loan amount. There are no prepayment charges to be paid if the borrower wishes to pay the entire loan amount before the end of the tenure.

The benefit of availing LAS is that the borrower does not have to sell or redeem the securities to raise money. Also, he/she continues to receive the dividend, bonus or interest amount on the securities during the tenure of the loan. Of course, if the borrower defaults in repayment of the loan amount, the bank or the financial institution will sell the securities and recover the outstanding amount of loan from the sale proceeds.