Loan Against Stocks – Lender’s Risk Rules for Eligible Credit Limit on Your Portfolio
How Do We Calculate Your Max Eligible Credit Limit?
- Lender maintains & reviews the list of approved stocks & ETFs periodically. You can find the latest list approved by the lender here: Approved Stock List
- While stocks may be approved, lenders evaluate them differently based on their risk categories. Your selected portfolio is sorted into four distinct categories, each with its own set of rules:
- Category 1 & 2: Stocks in these categories are always eligible without any restrictions. Please note that all ETFs are treated as Category 1, which makes them always eligible. These are your safest bets.
- Category 3: Stocks in these categories come with strict conditions. To include Category 3 stocks, you must:
a) Have at least 4 different stocks in your portfolio
b) Ensure no single stock exceeds 40% of your total eligible portfolio value - Category 4: Stocks in these categories come with stricter conditions. To include Category 4 stocks, you must:
a) Club them with stocks from Categories 1, 2, or 3
b) Category 4 stocks can contribute up to 20% of your total eligible portfolio, with the remaining 80% must come from Categories 1, 2, or 3
- Category 1 & 2: Stocks in these categories are always eligible without any restrictions. Please note that all ETFs are treated as Category 1, which makes them always eligible. These are your safest bets.
Why Adding or Removing Even One Stock Can Make You Ineligible?
Let’s say your portfolio looks solid at first glance. Here we explore three scenarios that illustrate how even one stock can significantly affect your loan eligibility. If you:
- Add a Category 4 stock that pushes its contribution above 20%; your portfolio can become ineligible
- Remove a Category 3 stock, and bring your total to less than 4 distinct stocks; your portfolio can become ineligible
- Add a Category 3 stock that holds 50% of your total portfolio value; your portfolio can become ineligible
In each case, just one change – adding or removing a unit – can tip the balance. Please note that while calculating your max eligible credit limit, we’ve already accounted for these conditions for your portfolio.
Pro Tips
- Don’t let a single stock dominate your investments
- Category 1, Category 2 stocks and ETFs can provide stability and increased chances of eligibility
Bottom Line
When it comes to Loan Against Stocks, diversification and composition matter as much as value. Lenders don’t just look at how much your stocks are worth – they examine what stocks you own, their categories, and how they interact within your investment mix.
