Demat Account: Considering pledging shares? 5 things to keep in mind before going ahead

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Demat account: How to pledge shares? Here's a step-by-step guide Typically, only shares of listed companies qualify for a loan, and they must not be entities that have been banned or delisted from stock exchanges. The same principle applies to mutual fund units. You have the option to pledge either a portion or the entirety of your securities, depending on the amount needed.

If the required sum is modest, you can choose to pledge only a fraction of your holdings. It's advisable to conduct a preliminary assessment to determine the approximate collateral amount necessary to fulfill your requirement. Upon obtaining a loan against securities, your pledged shares units are subject to a lien.

This signifies that you are unable to initiate any trading or selling activities until the borrowed amount is repaid to the lender. Also read: How does a demat account facilitate margin funding in trading? MintGenie explains If you are unable to repay the loan with its accrued interest within the specified tenure, lenders have the authority to liquidate your assets as a means to recover the outstanding amount. Interest is incurred on loans taken against shares.

Generally, the interest rates for loans secured against securities are considerably lower in comparison to personal loans. Depending on the bank, the interest rates typically range from 7% to 15% per annum. One advantageous aspect is that loans against equities are often provided as overdraft facilities, meaning you only pay interest on the amount utilised, offering flexibility and cost-effectiveness.