Taking a loan against shares (LAS) is a financial strategy that has been gaining popularity in recent years, especially among investors who own valuable shares in listed companies. This type of loan allows borrowers to access liquidity without having to sell their shares, which can be a huge relief for those who need quick cash but don't want to part with their prized investments.
So, how does it work? A loan against shares is a type of secured loan where the borrower uses their shares as collateral to secure the loan. The lender provides a loan amount that is a percentage of the value of the shares held by the borrower. The borrower can then use the loan amount for any purpose they want, whether it's to pay off debts, finance a new business venture, or cover unexpected expenses.
One of the key benefits of taking a loan against shares is that it allows borrowers to retain ownership of their shares while still accessing the funds they need. This can be especially important for investors who have a long-term perspective and don't want to sell their shares at a loss. Additionally, a loan against shares can be a more tax-efficient option than selling shares, as the borrower can avoid paying capital gains tax on the sale of their shares.
However, there are some eligibility criteria that borrowers need to meet in order to qualify for a loan against shares. Typically, lenders require borrowers to hold shares in listed companies that are approved by the lender. The lender will also typically require the borrower to have a minimum number of shares in their portfolio, and the shares must be in demat form. Borrowers will also need to provide documentation, such as proof of income and proof of ownership of the shares.
In terms of documentation, borrowers will typically need to provide the following documents:
- Proof of identity, such as a passport or PAN card
- Proof of address, such as a utility bill or bank statement
- Proof of income, such as salary slips or tax returns
- Demat account statement showing ownership of the shares
- Share certificates or a copy of the share certificates
The process of applying for a loan against shares is relatively straightforward. Borrowers can approach a lender, either online or in-person, and provide the required documentation. The lender will then assess the value of the shares and provide a loan amount based on a percentage of the value of the shares. The borrower can then use the loan amount as needed, and will be required to repay the loan, plus interest, over a specified period of time.
Overall, a loan against shares can be a useful financial tool for investors who need quick access to cash but don't want to sell their shares. By understanding the eligibility criteria, documentation requirements, and process of applying for a loan against shares, borrowers can make informed decisions about their financial options and achieve their financial goals.