FAQs: Loan Against Stocks on smallcase

Welcome to our comprehensive FAQs guide for Loan Against Stocks on smallcase.
Loan Against Stocks is our offering that allows you to borrow against your stock investments. We understand you may have a range of questions, from eligibility to potential use cases. Rest assured, we’re here to provide the answers you’re looking for!

Understanding Loan Against Stocks

1. What is Loan Against Stocks (LAS)?

• LAS is a financial solution that allows you to borrow money by using your stocks and ETFs as collateral, without selling your investments. It’s a way to access liquidity while maintaining your market position.

2. What securities can I pledge for LAS?

• Currently, you can pledge stocks and ETFs held in your Zerodha demat account. These securities must be from the lender’s approved list of stocks and ETFs. 

3. How much loan can I take against my mutual fund investments? 

• The loan amount depends on the value of the mutual funds you will keep as collateral. You can avail a loan against mutual funds for any amount ranging from ₹25,000.

4. How does LAS differ from other loan types?

• Unlike conventional loans that may require property documents, income proof, or strong credit scores, LAS uses your existing investments as security. You benefit from:
  • A simplified approval process
  • Flexible withdrawals and repayments
  • Ownership remains with you, and you will continue to receive corporate action benefits such as dividends and bonuses, unless otherwise stated in the agreement.

5. Is LAS different from LAMF (Loan Against Mutual Funds)?

• Yes. While both allow you to borrow against investments:
  • LAS is specifically for stocks and ETFs
  • LAMF is for mutual fund investments

6. Can we take LAS and LAMF together?

• Yes, you can combine LAS and LAMF to maximize your borrowing potential. If you have an existing LAMF, you can add LAS by using your stocks as additional collateral. Similarly, if you have LAS, you can enhance your loan with LAMF by leveraging your mutual funds.
• This allows you to utilize both your stock and mutual fund investments to access higher loan amounts. The only restriction is that you cannot take a top-up loan on LAS using another LAS.

Loan details and Eligibility

1. How much can I borrow through LAS?

• You can borrow from ₹25,000 up to ₹5,00,00,000, depending on your eligible securities. The loan-to-value (LTV) ratio is 45% on approved stocks and ETFs, subject to the portfolio meeting the lender’s risk conditions.

2. What is the interest rate for LAS?

• The interest rate ranges from 10.5% to 10.9% per annum on the outstanding loan amount.

3. How long can I take the loan for?

• The default tenure of the loan is 36 months.

4. What are my monthly payment obligations?

• On a monthly basis, you only pay interest at the rate of 10.5% – 10.9% p.a. on the outstanding loan amount. For instance, if you have an outstanding loan of ₹1 lakh, your monthly payment would be (1 lakh) x (10.5/12)/100) = ₹875.

5. Can LAS be used as a credit line?

• Yes! Once approved, your LAS works like a credit line where you can withdraw and repay multiple times within your approved limit without reapplying.

Eligibility and Requirements

1. Which stocks and ETFs are eligible for LAS?

• All securities from the lender’s approved list are eligible. You can check the complete list here. Additionally:
  • The securities must be held in your Zerodha demat account
  • Securities under lock-in or already pledged are not eligible
  • The portfolio must meet the risk criteria defined by the lender

2. Can I pledge my smallcase investments?

• Nope, not just yet but we’re actively working on it, and this feature should be available soon.

3. Can I get a top-up loan for LAS?

• Yes, top-ups are available for LAS – you can increase your loan by adding LAMF. However, please note that we currently don’t support LAS top-up using another LAS.

Application Process

1. What documents will I need to apply for LAS?

• Applying for LAS is a completely digital and paperless process. You’ll need:
  • Your PAN
  • The phone number/email address linked to your Zerodha account

2. What are the steps to apply for LAS?

• Check your available credit limit for LAS
• Select the amount you want to withdraw and choose the corresponding stocks or ETFs to pledge as collateral
• Add a bank account to receive the funds
• Set up a mandate for monthly interest auto-debit
• Pledge your selected securities
• Complete a simple KYC verification
• Sign the online loan agreement

3. How are my stock holdings imported?

• We import your stock holdings from RBI-regulated Account Aggregators (Finvu & OneMoney) after receiving your explicit consent.

4. How long does the application process and disbursement take?

• Once the application is completed, the loan amount is disbursed by 12 PM the next day.

Managing your collateral

1. What happens when I pledge my stocks and ETFs?

• Your securities are lien-marked in favour of the lender, meaning they are kept as collateral. While pledged, you cannot sell these securities, but you can continue to receive dividends and other benefits.

2. Can I buy more or sell my pledged stocks?

• Once your stocks and ETFs are pledged, you cannot sell them until you close the loan and remove the pledge. However, you can continue to buy more securities in your account.

3. When will my securities be unpledged?

• Your securities will be unpledged once you repay all outstanding dues and close the loan.

4. Can I unpledge some of my securities after partial repayment?

• No. Partial unpledging is currently not supported. The loan must be closed fully to unpledge all securities.

Fees & Charges

Type of fee	Applicable charges
Interest rate	10.5% – 10.9%  p.a.
Processing fee	₹999 or 1% of loan amount whichever is higher upto a maximum of ₹4999 (GST applicable) Example: – loan less than 1 lakh: ₹999 + GST – loan between 1 to 5 lakh: 1% of sanctioned amt
Late Payment Interest (after bounced auto-debit)	Penal interest is charged at 2% per month
Demat pledge charges	Lender charges Rs. 50 + GST per demat security and Zerodha charges Rs. 32 + GST per demat security
Bounce charges (for failed interest payment)	Rs 1200 per bounce
Part-prepayment charges	NIL
Foreclosure charges	NIL
Mandate inactive charges	NIL
Mandate verification (charged by your bank)	As charged by your bank (typically between Rs. 0 to Rs. 150)
Lien removal charges (if requested after taking loan)	NIL
Lien removal charges (if loan is canceled before disbursement)	Actual processing fee applicable
Collection/legal Charges (in case of default)	At actuals
Demat lien invocation charges (in case of liquidity)	0.02% + Flat Rs. 5 + GST  per demat security (Min Rs. 55 and Max Rs. 1005)
Demat share transfer charges (PAYIN)	0.02% + Flat Rs. 5 + GST  per demat security (Min Rs. 55 and Max Rs. 1005)
Stamp duty	0.015% on Demat lien invocation value

Loan Servicing

1. How do I manage my loan once it’s active?

• Go to the “Credit” tab on the smallcase app to view the Loan Dashboard, where you can manage your repayments, withdrawals, and other loan activities.

2. How are my monthly dues deducted?

• Monthly interest payments will be automatically debited from the bank account on which you set up the e-mandate.

3. How can I repay the loan partially or fully?

• You can visit the “Credit” tab on the smallcase app to access your Loan Dashboard. Click on the ‘Repay Amount’ button, choose the amount you want to repay, and complete the transaction.

4. What happens if the value of my pledged securities drops significantly?

• If your pledged securities’ value drops such that your outstanding loan exceeds the allowed loan-to-value ratio, you’ll need to bring your loan back within allowed limits by:
  • Repaying a portion of your outstanding loan, or
  • Pledging additional eligible securities
• You will be notified thoroughly if an event like this occurs. But, if you fail to do so within 7 days after notification, the lender may liquidate some of your pledged securities to recover the excess amount.

5. How can I close my loan?

• You can request loan closure from the help section of your ‘Loan Dashboard’ or by contacting our support team. Once all outstanding amounts are paid, your pledged securities will be released, and your loan account will be closed without any foreclosure charges.

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We hope this guide and borrowing against stocks FAQs was helpful in answering your queries regarding Loans Against Stocks. If you have any concerns, questions, or feedback, please don’t hesitate to contact us via email at help@smallcase.com or chat with our support team.