The word “debt” scares and worries many, as more often it is projected in a negative shade. People can learn a lot about getting out of debt from TV shows, books, and magazines. Debt is perceived as a bad thing, but it can also be a good thing if it’s used right.
The main way to use debt to make a good investment is to use leverage to make your returns grow quickly. How does leverage work? Leverage is when you use the money you don’t own to get a bigger return on your investment. With leverage, you can get returns you thought were impossible, but you also have a higher chance of losing your capital.
Preferences among the public for secured loans like loan against property, loan against mutual funds, or loan against shares is wide, as the associated risks and interest rates for the borrowed money are lower than that of the unsecured loans.
New-age businesses like Abhiloans are super-quick in processing digital loan against shares or loan against securities, which can help people in planning strategic ways of utilizing the borrowed funds to address the requirements or plan the portfolio better.
If you already have shares or other securities in your Demat account, contact your stockbroker to see if they offer loan against securities. Also, many NBFCs, including Abhiloans, offer quick disbursal of loan against securities.
People can use their shares as collateral to borrow money from banks and NBFCs. Since they submit securities against the loan, the interest rates are low. Here are ways to use stocks to borrow money.
Five different ways in which the stocks can be used for borrowing money
Margin Trade Funding
One of the quick and easier ways to borrow money against stocks is to make use of the margin trade funding options available with many brokerage houses. The brokers, keeping the shares as collateral, extend the margin funds.
Investors can use such margin funds secured as a loan against shares online for purchasing more shares for short-term or intraday trading requirements. The interest on such margin trade funds is competitive, while the actual portfolio is secured as the borrowed money is only an instant loan against securities available in the Demat account.
Pledging the Shares with Banks
The other conventional option is to use the shares available in the portfolio for pledging in the banks. Using the stipulated cap formula, banks shall extend loan against the shares pledged with them as a lien.
The other simple model of using the shares for borrowing money is to apply for a covered call margin and take a loan against stocks as a margin for the covered call. It will help investors with short-selling opportunities with limited capital investment from their side. For potential income generation, it is a proven method of using the loan against shares.
Many new-age non-banking financial institutions like Abhiloans have partnered with third-party lending institutions and facilitated quick turnaround disbursal of money as a loan against mutual funds or a loan against shares.
With the process being completely digital and approval being quick, the loan against shares online can be resourceful for investors in any contingent conditions or other strategic investment needs.
Security Lending and Borrowing Schemes
The other non-conventional approach is to lend the shares to other parties through the clearing corporations and generate revenues for the shares lent to the third parties.
Though this does not transpire into a loan against shares, there is a revenue proposition from the shares in the portfolio.