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How does Loans against Shares work?

A current account is opened in your name (initially for a 1 year period), and you are
provided with a personalized cheque book.Some banks also give you an ATM card,
and access to the Bank by Phone service. You can then use these to withdraw and
deposit money from/into your account, and, access an exciting range of banking
services. Of course, you pay interest only for the amount and period for which your
overdraft facility is utilized.

What are the common charges I have to pay while going for Loans against
Besides the interest rate; banks usually charge 1-1.5% on the loan amount
sanctioned as processing fees.
If you are an existing customer of the bank,the processing charges might be
lowered for you.
For example if have IDBI Bank as your DP and you take a loan against Share from
them the processing fees is .5% whereas for those who have DPs other than them
you have to pay 1.5%
Besides the processing fees,one might have to pay documentation charges(varies
from bank to bank).

What is the purpose of loans against shares?

The purpose of loans against shares is to take care of all your investment as well as
personal needs, meet contingencies, subscribing to primary issues, rights issues. It
is the ideal way to get liquidity without liquidating them.
It would make sense to avail of this facility when you are expecting a certain sum of
money a few months down the line and you need some funds in the interim.
In case you are thinking of availing this facility to to reinvest in the stock market
remember it will be a HIGH RISK HIGH RETURN Payoff. Taking a loan against equity
with the intention of buying into a stock at the IPO price and selling it on listing to
make a quick profit is a high-risk strategy.

Should I consider other alternatives before I decide on Loans against

We would seriously advise you to consider other ptions befor you decide to avail of
this facility.
Wouldnt it be better to break a fixed deposit rather than disturb your longterm
If you can ensure that the benefits you derive are more than the cost you have to
incur,go for it.Always keep the interest rate as the benchmark but rember that
generating returns higher than the cost of the loan (14-17 per cent) on a
sustainable basis is difficult.

Can only one scrip be pledged?

Single scrip lending is available against select scrips at higher margins. Some banks
have a specific list for single scrip portfolios. In case only one scrip is pledged
,normally 40% of the market value is available as overdraft

What are the key features of loans against shares?

Loan amount anwhere between a minimum of Rs 1 lakh maximum of Rs 10 lakh
(Physical) maximum Rs 20 Lakh (Demat)
Normally 65% of the scrips pledged is available as overdraft (if shares are demat) or
50% (if shares are physical).
Generally physical shares are accepted in market lots only.
There is a Minimum number of scrips and Maximum number of scrips which are
accepted by banks.Normally minimum might be 1 and maximum 20;though for a
few banks the maximum can be "no limit"
Investments in mutual fund units that are exempt from capital gains tax (under
Sections 54EA/EB) are not accepted as collateral.
Loans against mutual fund units are based on their NAV value. The base NAV could
be the last closing NAV or the average NAV of the previous week. Compared with
loans against shares, the extent of funding against mutual funds is generally lower,
at 40-50 per cent of the base NAV.

What does my limit depend on?

The limit depends on the valuation of the security, applicable margin, your ability to
service and repay the loan and other conditions as applicable from time to time

What will be my drawing power?

Individuals can normally draw upto 65% of the current market value of the shares.
The drawing power valuation is done at periods decided by the bank from time to
time as per the applicable market value/adopted by the bank.
Drawing on the account will be regulated by the available drawing power

What happens if my drawing power falls short of the outstanding?

In case the drawing power falls short of the outstandings, the borrower will be
advised to either replenish additional securities or make cash payment. You will be
charged an additional 2 % interest p.a. on the amount by which your outstandings
exceed the limit and for the period it is in excess.

What shares can I pledge to avail of Loans Against Shares ?

You can pledge any company share which is on the approved list of the bank. Some
banks have a specific list for single scrip portfolios. It is important to remember that
the approved list of shares is revised periodically by the banks.

Whose shares can I pledge?

For most of the banks ,You can pledge your own shares or those belonging to any of
the following:
- Your spouse
- Your children (above 18 years of age)
- Your parents
- Your brother(s)/sister(s)
- In Laws

- Grandparents
- Grandchildren (above 18 years of age)
Many banks do not accept third party shares. So check out the individual schemes
at myiris.com loan section.

My shares are in your approved list - but they are in physical form. Can
they be pledged?
Many banks accept physical shares but the finance you get for it is lower than what
you would have got if you had pledged demat shares. You can avail of a facility up
to 50 % of the value of your physical shares subject to a maximum of Rs 10 lakhs
.There are many advantages of getting your shares dematerialized. The government
is encouraging all investors to dematerialize their shares.

What usually is the criteria for availing loans against shares?

The shares should be on the approved list of the bank which would be revised
The shares should be fully paid up
Scrips in the name of Corporates, minors, Firms, HUF, and NRIs will not be eligible
for finance under this scheme.
Individuals cannot pledge scrips of companies of which they themselves are
All shares should be in their marketable lots only.

What is the interest rate I have to pay?

Check out the schemes section which contains the interest rates charged by various
Normally, Interest is calculated on a daily basis and charged only for the amount
and period during which you utilize the funds.
The interest rate charged by the banks vary with the scrip---whether it's physical or
demat. Hongkong bank which accepts only demat scrips charge interest rate of
16.5% .

Standard chartered bank charges 18.5% for loan against physical scrips while it
charges 17.5%for loan against demat scrips.
For physical scrips , HDFC Bank charges 17.5% for loan amt from 100000 to 500000
and for loan amount from 5 lakh to 10 lakh it charges 17% on physical scrips.
For demat scrips,HDFC Bank charges 17.5% for loan amt from 100000 to
500000.And for loan amount from 5 lakh to 10 lakh it charges 17% And for loan
amount above 10 lakh,it charges 16.5%
For most of the banks, interest rate range varies from 15% to 18.5% You will also be
charged an additional 2 % interest p.a. on the amount by which your outstandings
exceed the limit and for the period it is in excess.

Do I get any special privileges as a Loans Against Shares customer?

Yes! As a Loans Against Shares customer, many banks give you a host of value
added services. These include:( varies from bank to bank)
Concessional rates on your depository account.
Concessional rates on various Loan Products
Free access to 24 hour ATM facility
Free Access to 24 hour Bank by Phone facility
You can lodge or withdraw your shares, 6 days a week.
You get all dividend, bonus and rights issues even while the shares are with the
You can choose from one of the largest list of securities.
You pay interest only on the amount utilised.

What are the douments that are required ?

Normally, the following documents are required
For shares in demat form
Transaction request form.The lender will sell your shares in case you default using
this form.
Photocopy of dividend warrants of shares and units to be pledged.

Covering letter from the company received by the shareholder at the time of
For shares in physical form
Share certificates
Signed and valid transfer deeds (not more than a month old).
Photocopies of dividend warrants of shares and units to be pledged.
Allotment letter for rights or bonus shares from the company, or broker contract
note specifying share certificate and distinctive numbers.
Covering letter from the company received by the shareholder at the time of