Stocks and other financial securities are long-term investments resulting in compounding gains over the years. However, when a financial emergency or requirement arises, selling these securities can eliminate the probable gains that can accumulate in later years. A loan against securities (LAS) can help in protecting our future earnings by providing immediate funds.
A loan against securities is a secured loan offered against financial assets like stocks, mutual funds, insurance policies and fixed deposits. To meet the requirement of short-term funds, one can avail of loans and preserve the long-term gains on their financial investments.
Reasons to consider loans against securities
- The procedure for applying for a loan against securities is straightforward and minimal. LAS are flexible as there are no restrictions on the end-use of the funds. One can obtain a minimum of Rs. 5 lakhs to meet their urgent funding needs by pledging financial assets.
- When unfortunate events occur in a family or business, sufficient funds are required to cope with such situations. Financial institutions acknowledge the needs of borrowers, and based on the value of collateral securities, the loan amount is sanctioned quickly.
- Diversified financial investments have the latent ability to grow exponentially over the years. Liquidating these assets can deteriorate the returns from the investment. Opting for lower interest rates for loans against securities can help investors retain the holdings for their long-term gains.
- The loan amount can be within the range of 50% to 90% of the value of the collateral securities depending on the asset class.
- The interest rates for loans against securities offered are low, with the least time-consuming processes as they are secured.
- These loans are considered overdraft facilities, and the interest is to be paid on the loan amount withdrawn and the tenure it takes for the repayment. Supposedly, the securities value is Rs. 1 lakh, and the borrower withdraws Rs. 30,000 for two months, then interest is liable for Rs. 30,000 and only for two months.
