What is Loan Against Securities (LAS)?
There are times when you need funds quickly: to handle a financial emergency, purchase a home, launch a business, or simply bridge a cash flow gap. In such moments, selling your investments may feel like the obvious solution, but it often comes at the cost of your long-term financial goals. This is where a Loan Against Securities (LAS) comes in. LAS allows you to unlock the value of your existing investments without liquidating them by pledging them as collateral for a loan. In this article, we cover everything you need to know about LAS: how it works, its benefits and risks, eligibility criteria, fees and charges, and the types of securities you can pledge.
What is Loan Against Securities (LAS)?
Loan Against Securities (LAS) is a credit facility where you pledge your investments, stocks, mutual funds, bonds, and other financial assets as collateral to borrow funds without selling them. The loan amount is determined as a percentage of the market value of the pledged securities, which varies by the type of collateral.
LAS is a practical alternative to personal loans or credit cards, particularly for investors who need immediate liquidity but do not want to exit their positions due to tax implications, market timing, or long-term goals. Interest rates on LAS are generally lower than those on unsecured loans. You can explore two different forms of LAS at smallcase: a loan against mutual funds and a loan against stocks.
Thinking of Applying for LAS? Explore LAS and LAMF at smallcase
Loan Against Mutual Funds (LAMF)
Loan Against Mutual Funds (LAMF) is a type of loan where you pledge your existing mutual funds to get cash. If you meet the eligibility criteria, you can apply for LAMF on smallcase by following these steps:
- Visit the smallcase website.
- Click on ‘Credit’
- Select ‘Against Mutual Funds’
- Calculate the credit limit
- Confirm details with KYC
- Link your bank account
- Pledge your mutual funds
Loan Against Stocks
A loan against stocks allows you to borrow money by pledging your stocks & ETFs holdings as collateral. This means you can meet your financial needs without redeeming your investments, ensuring they remain intact and continue to earn returns. If you meet the eligibility criteria, you can apply for LAS on smallcase by following these steps:
- Visit the smallcase website.
- Click on ‘Credit’
- Select ‘Against Stocks’
- Calculate the credit limit
- Confirm details with KYC
- Link your bank account
- Pledge your stocks
Note: It is important to carefully review the terms and conditions of the loan and compare them with other options before investing.
Which Securities Can Borrowers Pledge as Collateral for Loan Against Securities?
Various types of approved securities can be pledged as credit against demat holdings for a loan against securities, including,
- Equities: Equities have high market value and high liquidity, making them one of the most commonly used securities for LAS. However, equities refer to stocks or shares of companies listed on the stock exchange, and they can experience volatility in their value, resulting in fluctuations in the loan amount.
- Mutual Funds: These are investment funds that pool money from multiple investors and invest in stocks, bonds, or other assets. You can opt for a loan against mutual funds that offers you the opportunity to receive immediate liquidity against the pledged mutual fund units.
- Fixed-income Securities: These are investments that pay a fixed interest rate, such as bonds, debentures, and fixed deposits. They are considered less risky than equities but may offer lower returns.
- Exchange-Traded Funds (ETFs): These are a type of investment fund that tracks a basket of assets such as stocks or commodities and trades like a stock on an exchange. ETFs offer diversification, low costs, and liquidity, but their value can be volatile.
- Insurance Policies: Some lenders also accept insurance policies such as endowment policies, money-back policies, or ULIPs as collateral for LAS.
What is the Difference Between Loan Against Securities and Other Types of Loans?
| Loan AgainstSecurities | Personal Loan | Home Loan | Business Loan | Purpose | RepaymentTenure |
| Loan Type | Securities such as stocks, mutual funds, bonds, etc. | Lower than any other unsecured loans | A percentage of the market value of pledged securities | Emergencies, opportunities, working capital, debt consolidation, etc. | Flexible, up to the tenure of the loan |
| Collateral | None | Higher than LAS | Up to a certain limit based on income and credit score | Personal expenses such as weddings, vacations, medical emergencies, etc. | Typically 1 to 5 years |
| Interest Rates | Property | Lower than personal loans but higher than LAS | Up to a certain percentage of the property value | Purchase or construction of a home or property | Up to 30 years |
| Business Loan | Business assets such as inventory, equipment, accounts receivable, etc. | Higher than LAS | Depends on the type of business and its financials | Working capital, expansion, purchase of assets, etc. | Typically 1 to 5 years |
| Credit Card | None | Higher than LAS | Based on the credit limit assigned by the issuer | Personal expenses such as shopping, dining, travel, etc. | Typically a minimum monthly payment |
What are the Benefits of a Loan Against Securities?
Here are a few advantages of taking a loan against collateral at smallcase:
- Lower Interest Rate: One of the benefits of pledging securities is that the borrower is using their own stocks, bonds, or other securities as collateral. This collateral reduces the risk for the lender, as they can seize the assets if the borrower defaults. This lower risk allows the lender to offer a lower interest rate. The interest rate for LAMF at smallcase is 10.25%, which is lower than the interest rate of unsecured loans.
- Basic Eligibility Criteria: Borrowers with mutual fund holdings in their demat account can apply for a loan against shares and securities. The applicant must be an Indian citizen and 18-70 years of age.
- 24×7 Access to the Account: You can access your loan account at any time and anywhere. You can also contact the customer support team if you need further assistance with the loan.
- Overdraft & Interest: A loan against securities is similar to an overdraft loan. The main difference is that with a loan against securities, you’re using the stocks, bonds, or other securities you own as collateral to borrow money. This makes it a flexible borrowing option because you only pay interest on the funds you actually withdraw and use from your account, not the full loan amount.
- Flexible Repayment Option: With a LAS, you can repay the loan in a way that works best for your financial situation, similar to an overdraft facility. You can pay just the monthly interest, resulting in lower EMIs. This allows you to manage your cash flow more easily. Additionally, you can close the loan before the tenure of 36 months ends with zero foreclosure charges.
What is a Loan Against Shares?
A loan against shares is a type of loan where the borrower pledges their shares as collateral in exchange for money. The amount of the secured loan on shares depends on the value of the pledged shares, and the lender may hold the shares as collateral until the borrower repays the loan.
Compared to other types of securities, loans against shares may offer lower interest rates since shares are generally considered more liquid and less volatile than other types of securities. However, the maximum loan amount may also be lower since stocks can be subject to market fluctuations and may not hold their value over time. The eligibility for loan against securities is that the borrower must typically own the shares outright and have sufficient shares to pledge as collateral.
Things to Consider Before Taking a Loan Against Securities
Here are a few important factors to keep in mind before taking a loan against your securities:
- Check your Eligibility: At smallcase, the eligibility for loan against securities is basic, with minimum documentation requirements. The application process takes less time since it is 100% digital and paperless.
- Understand the Repayment Terms: It is important to carefully review the repayment options for loan against securities and ensure you can comfortably make the payments. Consider your cash flow and financial obligations before committing to a loan. Additionally, check the penalties that are going to be applied (if any).
- Monitor Your Collateral: You should keep track of the value of your pledged securities and maintain a sufficient margin to avoid margin calls or forced liquidation of your assets in case of a market downturn.
To Wrap It Up…
To conclude, a Loan Against Securities (LAS) allows individuals to pledge their securities, such as stocks, mutual funds, bonds, and other financial assets, as collateral to obtain a loan from a lender. Borrowers can pledge various types of securities as collateral, including equities, mutual funds, fixed-income securities, ETFs, and insurance policies. If you are looking to avail a loan against securities, you can consider exploring a loan against mutual funds or smallcase. As always, please do your own research and/or consult a financial advisor before investing.
Note: Since each type of security comes with its own benefits and risks, it is advisable to consult a financial advisor before making an investment decision.
Frequently Asked Questions on Loan Against Securities (LAS)
Loan against security is a secured loan where the borrower’s financial assets, such as stocks, bonds, mutual funds are used as collateral. This enables lower interest rates and flexible repayment terms compared to unsecured personal loans.
The primary objective of obtaining a LAS is to meet financial needs without selling your securities, thereby preserving your investments and continuing to earn returns from them. This type of loan allows individuals to pledge their securities, such as stocks, bonds, mutual funds, or other financial assets, as collateral to secure a loan from a lender.
Yes. There are no foreclosure charges on the smallcase LAMF.
At smallcase, the loan amount for a loan against mutual funds starts from ₹ 25,000 onwards.
To close the LAS account, you need to first pay off the entire outstanding loan amount, including any accrued interest. This will clear the dues on the loan. Once the loan is fully repaid, you can reach out to our customer support to request closure of the LAS account.
A loan against securities (LAS) is a secured loan where securities like stocks or mutual funds are pledged as collateral, offering lower interest rates and higher loan amounts. In contrast, a personal loan is unsecured, has higher interest rates, and depends on the borrower’s income and creditworthiness rather than collateral.
A loan against securities (LAS) is not taxable since it is a debt and not income. However, if the lender sells pledged securities due to non-repayment, any capital gains tax may apply on the sale. Additionally, interest paid on LAS is generally not tax-deductible unless used for business or investment purposes.
