Demat Account: What is loan against securities and what are its benefits?

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A loan against your demat shares allows you to obtain credit by using your shares as collateral. This enables you to leverage your investments without having to sell your shares to access the capital. The loan requires no additional collateral beyond the shares already held in your demat account.

Applying for a loan from the same financial institution that holds your demat account can make the process smoother. The institution already has your shares as collateral, which streamlines the disbursal process. It's important to open a demat account with a reputable financial institution that provides convenient loans against securities.

While your demat shares are pledged as security, you continue to receive the benefits of your investments. This includes dividends, bonuses, and rights. Your shares remain intact while you access funds. The most attractive benefit of pledging your shares to get loans is the high loan amounts.

To qualify for a loan against demat shares, you must be between 18 and 65 years old. Only shares in an individual's name can be pledged, not those of minors, HUFs, NRIs, or corporations. Essential documents such as ID proof, address proof, income proof, and a statement from your DP are required. Additionally, you can't pledge shares of a company in which you are a Director or Promoter.

Loans against demat shares can reach up to Rs. 20 lakhs. These loans usually offer lower interest rates compared to personal loans, typically ranging from 12-18 percent per annum. They do not require guarantors and often have no prepayment penalties. The value of pledged shares is assessed weekly.

Avoid using loans against demat shares to reinvest in the market, as this can result in losses if the market sees a downturn.