In the dynamic investment scenario, disposing of funds without losing control over assets is of highest concern for investors. Loan against security is a best funding vehicle for investors who need funds without having to give away their investments. Such a loan is secured against marketable securities such as stocks, mutual fund, and government bonds and has a number of benefits including cost savings to immediate disbursal.
In this article, we are going to learn why loan on security is the first choice of the investors in India. We are going to learn the features, advantages, and how a tool such as loan against securities EMI calculator can assist the borrowers in planning for the payment.
Knowing loan on security
A security loan is a secured loan extended on the basis of the security of securities held by the borrower. The securities may be equity shares, mutual funds, bonds, debentures, and other marketable instruments. The extent of the loan extended is a proportion of the market value of these securities.
This gives the investor an opportunity to dispose of the worth of his illiquid assets without disposing of the assets. Because the loan is collateralized, interest rates are slightly less than in unsecured loans. Repayment terms can be discussed and usually contain easy interest or reducing balance bases of interest.
Important features of loan on security
One should note down the characteristics that distinguish the loan on security from the rest of loans:
Collateral Based lending
Loan is collateralized by securities, lowering the lender’s risk.
Quick processing
Since securities are liquid, disbursal and approval of the loan also happen fast.
Low interest rate
Since the loan is collateral-based, the interest is lower than personal or unsecured loans.
Adjustable repayment horizon
The repayment can be planned in terms of the borrower’s cash-flow requirement.
No liquidation of investment
The owners continue to hold and benefit from profits in the market, i.e., dividends and appreciation.
Loan against securities EMI calculator
Facilitates lenders to compute instalment per month from loan amount, rate of interest, and tenure.
Benefits of loan on security to investors
Preserves integrity of investment portfolio
One of the primary reasons for financing a security-backed loan is to avoid impairment of investment plans. Compulsory sale of securities during declining markets incurs losses. Borrowing against securities anticipates compulsory selling, and investors are able to make use of future appreciation.
Low-cost borrowing facility
Banks and financial institutions also levy interest between 8% to 12% on loan against security products, which is relatively low as compared to credit card facility or unsecured loans. It is hence an investors first choice of fund source if they wish their cost of borrowing to be minimal.
Facility for easy availability of funds
The process of loan is undertaken relatively faster as the collateral only needs to be verified relatively easily and is highly liquid in nature. In contrast to property loans involving massive legal verification and appraisals, the securities loans are processed within days, thereby offering a quick turnaround to urgent cash needs.
Flexible use of funds
Funds collected by way of loan on security are not bedeviled by such limitations. To develop their business, to invest in real estate, education, or medical requirements, the investors may use funds borrowed by them as they please.
Secured lending and unsecured lending
Investors may compare the advantages and disadvantages of secured lending by way of loan on security vis-a-vis unsecured lending options such as personal loans.
- Charges for interest: Security loan is less expensive with lower interest charges.
- Loan size: Big sizes of loans are commonly given on security due to the fact that they are secure.
- Risk: Default of a loan on security may result in forced selling of securities, whereas there is other legal difficulty associated with unsecured loans.
- Time of disbursal and documentation: Loan on security is documented with less complexity and disbursal takes less time.
Thus, for large portfolios of security holders, loan against security remains a favorite.
Function of loan against securities EMI calculator in financial planning
Monthly instalments calculation is an essential activity of handling personal finance while availing a loan. A loan against securities EMI calculator is an instant facility given by banks and NBFCs through which borrowers are able to calculate their EMI with the amount, rate of interest, and the time period.
With the assistance of the calculator, investors are able to:
- Optimize cash flows on a monthly basis.
- Compare various offers of loans in terms of interest rates and tenures.
- Prevent surprises at repayment time by making it affordable.
- Select loan amount and tenure cautiously.
Such transparency renders the loan on security products convenient and worthwhile as a source of finance.
Eligibility criteria for loan on security
Despite the simplification of the process, lenders offer eligibility criteria to limit risks. Common criteria are:
- Qualifying securities holding: Shares of popular stock exchanges, bonds of government, listed units of mutual funds etc.
- Holding period: Stocks may be asked to be held for some minimum period in order to qualify.
- Credit history: Good credit history (usually 750 and above) proves borrower dependability.
- Age and income criteria: White-collar professionals and small entrepreneurs falling within the age bracket (generally 21-65 years) and minimum income are screened.
- Loan to value (LTV) ratio: The lenders typically provide 50% to 75% of security value as value of the loan.
Satisfies such guarantees easy sanction of loan and concessional interest rates.
Comparison with other means of funding
| Funding Option | Interest Rate (Approx.) | Repayment Flexibility | Collateral Required | Range of Loan Value | Tenure |
| Loan on Security | 8% – 12 | High; part-prepayment and overdraft-type of usage typically permitted. | Shares, mutual funds, bonds | 50%–70% of security value, depending upon LTV ratio. | Short to medium term (upto 3 years). |
| Personal Loan | 12% – 24% | Fixed; moderate; fixed EMIs, prepayment can be levied. | None (unsecured) | Rs. 50,000 – Rs. 40 lakh (profile based). | 1–5 years. |
| Home Loan | 7% – 9% | High; long-term EMIs, prepayment subject to terms. | Residential/commercial property | Rs. 10 lakh – several crores. | Long term (10–30 years). |
| Credit Card Limit | 20% – 40% | Very high; partial repayment is allowed under revolving credit but interest accumulates very quickly. | None | Limited by card’s credit limit (Rs. 20,000 – Rs. 5 lakh+). | Open-ended (no tenure). |
Loan on security hence provides investors with a reasonably decent combination of low rate of interest, speedy disbursal, and flexibility in repayment.
Tax implications of loan on security
The second important benefit of loan on security is its tax implication. In comparison to selling securities, which subjects an investor to capital gains tax, taking a loan against securities does not subject an investor to a direct tax liability. Investors can keep their portfolio intact, postpone capital gains tax, and use the borrowed money based on their requirements.
But loan on security interest will not be deductible if money is applied to a business or investment purpose. One would need to consult a tax adviser for the maximum tax effectiveness.
Considerations prior to acquiring loan on security
These are considerations prior to making a decision regarding loan on security:
- Valuation fluctuation: Market fluctuation may affect security value, causing margin calls from lenders.
- Repayment ability: Opt to pay loan instalments without straining finances.
- Purpose of fund: Invest money in profitable or exciting ventures.
- Duration of loan: Longer loan duration lowers EMI but raises overall interest outgo.
- Foreclosure and prepayment charge: Review terms for any prepayment or late payment charge.
Due analysis minimizes the risks and increases the advantage of this money option.
Procedure to take loan on security
Taking loan on security constitutes the following procedure:
- Check your portfolio of securities and approximate a rough amount of loan.
- Do EMI planning using the loan against securities EMI calculator.
- Select the financier who provides good interest rate and liberal tenor.
- Transfer documents such as ID proof, income proof, and proof of securities.
- Go ahead with the financing approval and collateral valuation of securities.
- Get the loan document signed and money credited to your bank account.
The above will provide the smoothness of the loan.
Conclusion
For the investors in India seeking a cost-effective, adaptable, and time-saving money-raising option, the loan on security proves to be the best fit. It enables unlocking of liquidity without any dilution of the investment portfolios, provides lower rates of interest, and enables quick disbursal. The availability of tools such as the loan against securities EMI calculator helps the borrower to plan the repayment long before and circumvent financial hardship.
By knowing the characteristics, advantages, and judicious application of loan on security, investors can manage their funds effectively without jeopardizing their wealth growth path. In general, this source of finance is most appropriate for investors looking for liquidity alongside preserving assets in India’s emerging financial scene.
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