Using Loan Against Securities for Short Term Cash Needs

Loan Against Securities can be a useful tool for meeting short-term cash needs without having to sell your investments. LAS is a loan provided by financial institutions against the collateral of securities such as stocks, mutual funds, bonds, or other securities. The loan amount is determined based on the value of the securities provided as collateral, and interest rates for LAS are generally lower compared to unsecured loans since the loan is backed by collateral. LAS is typically offered for short to medium terms, usually ranging from a few months to a few years. Repayment terms vary but are often flexible.

You can usually choose to pay only the interest during the term and repay the principal at the end or make regular EMI payments. However, there are considerations to keep in mind. If the value of your securities drops significantly, you may be required to pledge additional securities or repay a portion of the loan to maintain the required loan-to-value ratio. While interest rates are lower, there are costs involved such as processing fees, valuation charges, etc. Pledging securities for LAS can also impact your investment strategy and potential returns, especially if the securities pledged were expected to appreciate significantly.