Loan against Demat Shares
Loan against shares is available in the form of an overdraft facility against the security of financial products like shares. Demat account is the movement of physical certificates to electronic form.
Actual shares certificates are removed and eliminated from circulation in exchange for electronic recording. The bank grants a loan by considering a lien on the shares it locks in the Demat account so that you can then withdraw up to the amount sanctioned. Interest is imposed only for the number of days you use the amount. Things you should remember before you think of obtaining a loan against shares.
1) It is advisable to take a loan against financial instruments only when the requirement is for a certain amount of money for a few months down the line and you need some funds in the interval.
2) If you are reinvesting the loan amount, ensure that the advantage of doing is profitable and more than the cost you incur. Pre-plan things to avoid any difficult situation.
3) RBI permits banks to lend up to 65 % of the worth of Demat shares and 50% of the value of physical shares.
4) If you need a loan against your shares, it will be much simplified if you have a Demat account with your bank.
5) Demat shares get you a larger loan amount, in a much faster time, at a lesser rate of interest and diminutive processing fee.
Benefits of Loan against Demat Shares
1) Loan against Demat Shares is a smart way to short-term funds. When personal loans have become the foremost option considered by most of the people, many people remain unaware of loans against financial instruments. Many private banks and PSUs offer such loans in the market, with the rate of interest on personal loan varying from 12% to 15%.
2) Availing such loan is quick, easy, simpler and grants immediate liquidity. Unlike other loans, one can easily avail a loan against securities, but you should have some good scrips and valued securities. The benefit of such loans is that there are no pre-payment charges in most cases, and an overdraft facility is also attached to them.
3) Analysts also point out that the interest is assessed on the amount you use. A personal loan is usually EMI-based loans, where interest is payable after the loan is disbursed.
4) In case of loan against shares, the interest is charged only on the utilization of the limits sanctioned and solely for the number of days it is used. It is advisable if the benefit is not invested back in the market because that might be of high risk and debt-trap.