What Is Loan Against Securities – A Complete Guide

Are you planning to sell or liquidate your long term investments like Mutual Funds, Shares, Insurance policies or Bonds to meet a financial emergency? Stop! There is a much better way to deal with the situation without liquidating your investments. You simply need to go for a Loan Against Securities (LAS) facility to meet your needs. Read on to know more about LAS.

What is a Loan Against Securities?

LAS is a type of loan that is granted against Bonds, Insurance policies, Mutual Funds and Shares as collateral. Such loans are provided as an Overdraft facility. Thus, you can withdraw any amount within the specific loan limit, which is typically based on the value of the pledged asset. The interest on Loan Against Securities is charged solely on the amount withdrawn for a particular period.

One of the best things about LAS is that you keep on receiving dividends and bonuses associated with your investments even when they remain pledged to the bank. You can avail a loan of up to Rs 20 lakh against your equity investments; there is no maximum limit on the loan amount against your debt investments, subject to credit assessment. We also offer a Digital Lending solution against Shares and Mutual Funds to select existing customers of the Bank.

When should you take a Loan Against Securities?

Before we delve further, let’s discuss when you should consider an LAS. For example, your business might be profitable – you have happy customers, revenue is strong and your financial goals are being ticked off. But suddenly there is a financial emergency upon you! A business is prone to such emergencies particularly during the initial stages.

During such times, your prime focus is to address the short-term operational requirements so that you don’t face insolvency. For this reason, many businesses go for Working Capital Loans. If the business has a good credit score, getting an unsecured loan won’t be difficult but it’ll come at a high interest rate. LAS is a facility which can help you out of this financial crunch.

Furthermore, an individual may also face an urgent liquidity requirement to meet personal exigencies like a medical emergency, overseas travel, children’s education/marriage or an asset purchase. It is never prudent to liquidate or sell one’s long-term investments for short-term funding requirements. This is where a Loan Against Securities comes in handy.

What form of assets are allowed to be pledged?

Assets like Tax Free Bonds, Mutual Funds, Shares, Insurance policies and Demat Sovereign Gold Bonds are accepted as collateral by nearly all banks and financial institutions, including ICICI Bank. If you don’t own any asset, you are still allowed to pledge assets that belong to a blood relative above 18 years of age in certain cases. In such a case, your relative has to act as your co-applicant or Guarantor and also sign the Overdraft agreement.

What are the documents required for an LAS?

Most lending institutions ask for basic documentation such as KYC documents (photocopies of PAN Card, address proof, identity proof), bank statements and income proof, along with certain other documents depending on which category you fall under. There will be a separate set of documents required for Limited Companies, Partnership Firms, Self-employed and Salaried individuals.

You can also check the documentation requirement and eligibility criteria on ICICI Bank’s website or visit your nearest branch to know more.

Interest related fees

You are charged a processing fee on the sanctioned loan. Interest rates are not the same for every borrower. There is also a penal interest of 6% on the overdrawn amount that is charged every month, in case you have overdrawn your credit limit.

On top of that, there are renewal charges which are applicable on the renewal date.