What is a Loan Against Securities (LAS)?

A Loan Against Securities (LAS) is a type of loan where you pledge your existing securities, such as gold, shares, bonds, or mutual funds etc as collateral to borrow money. This allows you to access funds without having to sell your investments.

Benefits of LAS

Quick Access to Funds: LAS offers a fast and convenient way to access funds. You can typically obtain a loan within a short period, providing much-needed liquidity during financial emergencies.

Maintain Ownership: Unlike selling your securities, LAS allows you to retain ownership of your investments. Deferment of Tax is one of the biggest advantages of LAS as you don’t sell the securities for funds. This can be beneficial if you believe in the long-term potential of your holdings and don't want to miss out on future gains.

Flexible Repayment Terms: LAS fund managers often offer flexible repayment options, allowing you to customize the loan to your financial situation. You can choose between fixed or variable interest rates, usually lenders change the interest rates as per the interest rate prevailing in the markets or as per their terms and conditions. The loan tenure is not fixed as you can utilize the funds as or when you needed. This flexibility gives you a comfort of repayment that works best for you.

Competitive Interest Rates: LAS typically offer competitive interest rates compared to other types of loans, such as personal loans or credit card loans. This can help you save on interest costs, reduce your overall borrowing burden and most importantly time of approval, as LAS approval done online takes a few minutes for approval of application & availability of funds.

Payment Conditions:

• Principal and Interest: You can repay the loan as per your convenience, you need to pay a minimum of your interest every month.
• Interest-Only Payments: During the initial loan period, you may only be required to pay interest, with the principal repaid in a lump sum at the end of the term.
• Bullet Repayment: The entire loan amount, including principal and interest, is repaid in a single lump sum at any time during the loan term.

Additional Considerations:

• Loan-to-Value Ratio: The lender will assess the loan-to-value ratio, which is the loan amount compared to the value of the collateral.
• Documentation: Prepare the necessary documents, such as proof of identity, address, income, and ownership of the securities.
• Prepayment Charges: Check if there are any prepayment charges if you want to repay the loan early. Usually, these charges are NIL.
• Market Fluctuations: Be aware that the value of your collateral may fluctuate, which could affect the loan amount or interest rate.

Types of Securities Accepted as Collateral

• Equity Shares: Shares of listed companies.
• Government Bonds: Bonds issued by the government.
• Corporate Bonds: Bonds issued by corporations.
• Mutual Funds: Units of mutual funds.
• National Savings Certificates (NSCs): Government-backed savings certificates.
• Kisan Vikas Patra (KVP): Government-backed savings schemes.
• Sovereign Gold Bonds (SGB): Government-issued bonds linked to the price of gold.

These securities are generally considered safe and liquid, making them suitable for use as collateral for LAS. However, the specific types of securities accepted may vary depending on the lender's policies and market conditions.

Factors Affecting Loan Eligibility and Interest Rates

• Value of Securities: The value of your pledged securities will determine the loan amount you can avail.
• Market Volatility: Fluctuations in the market value of your securities can impact your loan eligibility and interest rates.
• Credit Score: A good credit score is a crucial factor in determining your loan eligibility and interest rate. Lenders assess your creditworthiness to gauge your ability to repay the loan. A higher credit score typically indicates a lower risk to the lender, which can lead to more favorable loan terms.
• Loan Provider: Different lenders may have varying eligibility criteria and interest rates.

How to Apply for a Loan Against Securities

1. Choose a Lender: Select a reputable lender that offers LAS services.

2. Submit Documentation: Provide the required documents, which typically include:

• Proof of identity: (e.g., Aadhaar card, PAN card)
• Proof of address: (e.g., AADHAAR, Driving License, utility bills, passport)
• Income proof: (e.g., salary slips, bank statements, ITR)
• Details of your securities: (e.g., share certificates, mutual fund statements, bond certificates)

3. Valuation: The lender will assess the value of your securities.

4. Loan Approval: If your application is approved, you'll receive a loan offer with the terms and conditions.

5. Disbursement: The loan amount will be disbursed to your account.

In today’s era most of the LAS providers process the LAS application online & process the same within a few minutes.

Important Considerations

• Margin Requirements: Lenders may require you to maintain a certain margin between the value of your securities and the loan amount. If the value of your securities falls below the margin requirement, you may be required to provide additional collateral or repay a portion of the loan.
• Interest Rates: Interest rates for LAS can fluctuate based on market conditions.
  It's important to understand the interest rate structure and how it may impact your loan repayments.

By understanding the benefits, factors, and process involved in LAS, you can make an informed decision about whether it's the right financing option for your needs.