What is a loan against securities? Full form, benefits, more

What is a loan against securities (LAS)?

The full form of LAS in banking is Loan Against Securities. It is a type of secured loan borrowed against financial securities or assets. The borrower can pledge financial securities such as mutual funds, stocks, gold deposit certificates, fixed-income instruments and life insurance policies.

A loan against securities means you get the required money without having to break securities. It allows you to borrow money while keeping your investments intact. The best part is that you’re only pledging them as security, not selling them. Typically, an LAS can be more affordable than a personal loan because interest rates may be lower.

As per RBI guidelines, you can apply for a loan amount of up to 50% of the value of the pledged securities; however, the loan amount limit depends on your lender, too.

How does a loan against securities work?

A loan against securities can be obtained from banks and Non-Banking Financial Companies (NBFCs), with which you deposit your securities. Once the lender evaluates and approves the securities, they will determine the loan amount you are eligible for. The cumulative value of the securities largely determines the loan-to-value amount.

Loans against securities are secured loans that are offered as an overdraft facility. Simply put, you can withdraw a limited amount of funds as needed. The interest you pay will depend on the amount you withdraw.

Let’s understand how LAS works, with Raghav’s example. Raghav’s securities allowed him an overdraft facility of ₹5 lakhs. He withdrew ₹2 lakh for 6 months. In such a scenario, Raghav will have to pay interest only on the utilised amount of ₹2 lakh. If Raghav returns the borrowed amount within a month, then the interest will be calculated for that one-month period only.

What are the benefits of a loan against securities?

LAS can benefit you in multiple ways. Some of the striking benefits of loans against securities are discussed below:

Low interest rates

The interest rates on loans against securities are lower than those on unsecured loans. Thus, it can be an ideal choice for someone with listed financial securities.

Interest on the used amount

Loans against securities work like an overdraft facility. The applicant receives a loan, but the interest is only charged on the amount used. For instance, if you get a loan with a ₹10 lakh limit and use only ₹7 lakh, the interest will be charged only on ₹7 lakh, not the entire loan amount.

Flexible repayment

The repayment of loans against securities is usually flexible. You get a long repayment tenure. Also, some financial institutions may charge nominal or no foreclosure charges.

Securities continue to earn returns

While you have pledged the securities as collateral for loans, they continue to earn profits. The pledged securities still belong to you, and so, you keep earning benefits from the assets.

Easy eligibility

The eligibility criteria for a loan against securities are quite simple and easy to fulfil. It has been discussed in detail below. Indians or NRIs aged 18 or older with listed financial securities can apply for loans against securities.

Eligibility criteria for a loan against securities

Applicants for a LAS must fulfil certain eligibility criteria. The LAS meaning maybe the same for each lender; however, the exact eligibility criteria may vary from one lender to another. General criteria are discussed below for your reference:

Age requirement

The LAS applicant must be an individual aged 18 to 65. The age criteria may vary slightly depending on the lender company.

Income requirement

LAS applicants' income status is also taken into account. The applicant can be a salaried or self-employed professional. The income criteria primarily depend on the lender’s terms and conditions.

Approved securities

To apply for a loan against securities, the applicant must hold certain types of securities. Common examples of financial securities include mutual funds, equity shares, gold deposit certificates, National Savings Certificates, life insurance policies, Kisan Vikas Patras, and more.

How to apply for a loan against securities?

Applying for a loan against securities is simple. You just need to follow the steps given below:

Choose the right lender

The first step is choosing the right lender. You must compare interest rates, processing fees, market reputation, and the lender's history before making a choice.

Check the list of accepted securities

As discussed above, you need to pledge financial securities for LAS. It is important to check the list of accepted securities with your chosen lender. If you have the listed securities, you may proceed.

Apply online or offline

You may apply either online or offline, as per your convenience. To apply offline, visit a nearby branch of your lender. Online applications can be submitted through the lender's official website. You will be required to submit KYC details and financial portfolio details.

Loan agreement & lien marking

Once you submit the application form, the lender will prepare the loan agreement and the lien marking.

The loan agreement will specify the loan terms and conditions, as well as the lien marking. This means the financial securities you have pledged are still in your name. However, you cannot sell or transfer them until the loan is fully repaid.

Loan disbursal

After you have successfully completed the loan against securities process, the lender will take some time to verify and approve it. In many cases, the loan amount is disbursed within 24 to 48 hours.

Should I consider taking a loan against securities?

When you own securities such as mutual funds, equities, insurance policies, ETFs, or fixed-income securities, handling a financial emergency becomes easier. LAS allows you to unlock value from your portfolio while still continuing to work for you.

So, if you thought opting for high-interest loans or maxing out your credit card were your only way out, LAS can be an affordable alternative. To make an informed decision, consider using online LAS calculators to estimate eligibility and costs, and consult a financial advisor to understand how this aligns with your overall financial plan. Used wisely, LAS can help you navigate emergencies with stability and confidence.

Conclusion

For anyone with a strong portfolio, a loan against securities can be a practical and cost-efficient solution during a financial crunch. Without disrupting your long-term investments, you can easily access funds. Most lenders today use a quick, paperless process to disburse funds promptly.

If you’re considering a loan against your mutual funds, JioFinance App makes the experience even smoother. With a 100% digital loan application and fully online processing, you can access funds quickly without paperwork or delays. The platform offers competitive interest rates starting at just 9.9% per annum, helping you keep borrowing costs low. Plus, with zero prepayment charges, you’re free to repay the loan whenever you want, without penalties or extra fees.