Loan against shares: How it works, eligibility, documents needed
loan against shares (LAS) is a way to access liquidity without selling valuable shares. This enables investors to leverage their equity portfolio to meet immediate financial needs, such as business expansion or personal expenses.
How LAS works
Under LAS, investors may pledge their shares as collateral to secure a loan. Banks and non-banking financial companies (NBFCs) offer this service, with the loan amount usually capped at 50% of the market value of the pledged shares. The borrower can continue to retain ownership of the shares, enjoy dividends and voting rights. However, the shares are held in a demat account, with a pledge marked in favour of the lender until the loan is repaid. The loan can be structured as a lump sum or an overdraft facility, giving flexibility to the borrower.
Eligibility
Borrowers must hold shares in listed companies approved by the lender. In addition to shares, some institutions allow securities like mutual funds or bonds to be pledged.
Documentation
To be able to process the LAS request, the bank or NBFC may ask for the following documents:
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