What Is a Loan Against Shares?

A loan against shares lets you borrow by pledging your listed shares as collateral. Banks, NBFCs, and financial institutions offer secured loans, holding your shares until repayment. This type of loan is ideal for investors who need liquidity but don’t want to sell their equity holdings.

The biggest advantage is that you can unlock the value of your shares while continuing to benefit from potential market growth. You still remain the owner of your investments, and dividends or bonuses (if applicable) may continue to accrue to you, depending on the lender’s policy.

What Are the Key Benefits of Loan Against Shares?

Taking out a loan against shares comes with multiple advantages for investors and traders alike. Let’s look at the main benefits.

1. Retain Ownership of Your Shares

Your shares continue to remain in your demat account and can appreciate in value while being pledged. Since you’re not selling them, you avoid losing out on future market gains. This allows you to meet your short-term funding requirements without interrupting your long-term wealth creation goals.

2. Lower Interest Rates

Loans against shares typically come at lower interest rates compared to unsecured loans like personal loans or credit cards. Since your equity holdings serve as security, lenders face reduced risk and pass on the benefit in the form of competitive rates.

3. Flexible Loan Limits

The loan amount depends on the market value of your shares and the lender’s loan-to-value (LTV) ratio, generally up to 50-60% of the share’s current market value. Some lenders also set different limits based on the type of shares and their liquidity. This flexibility allows you to borrow according to your needs.

4. Minimal Impact on Credit Score

Because your shares serve as collateral, lenders feel more secure, and approvals are faster. Timely repayments may even strengthen your credit score. As long as the loan is serviced on time, it has a positive impact on your credit history.

5. Fast and Convenient Access to Funds

The entire process of availing a loan against shares can be completed online in just a few steps. With minimal documentation and instant verification, funds are often disbursed within hours, making it an excellent choice for emergency or business-related cash needs.

6. Multi-Purpose Use of Funds

There are no restrictions on how you use the money. Whether it’s for business expansion, home renovation, education, medical expenses, or meeting short-term obligations, the loan against shares offers complete financial flexibility.

Application Process for Loan Against Shares

Applying for a loan against shares has become quick and paperless thanks to digital lending platforms. Here’s the typical process:

Step 1: Log in to your bank or NBFC’s online portal to start your loan application.

Step 2: You’ll receive an OTP on your registered mobile number for verification and consent.

Step 3: Enter your personal details, PAN, and demat account information.

Step 4: Select the shares you wish to pledge and the loan amount you want to apply for.

Step 5: Upload identity proof and bank details for the credit of funds.

Step 6: Once the lender places a lien on your shares and completes verification, the approved loan amount is credited directly to your account.

Features of Loan Against Shares

Here are some key features that make a loan against shares an attractive borrowing option:

Quick Disbursal: Funds are credited to your account within hours of approval.

Wide Coverage: You can pledge shares of listed companies held in your demat account.

Ownership Retention: Your shares remain yours; only a lien is marked against them.

Open for New Borrowers: Even if you don’t have a borrowing history, you can still apply.

Pay Only for What You Use: Interest is charged only on the amount utilized, not the total sanctioned limit.

No End-Use Restriction: You’re free to use the funds for any legitimate financial purpose.

Conclusion

A loan against shares is a smart and efficient way to access liquidity without selling your equity holdings. It combines flexibility, speed, and cost-effectiveness, allowing you to meet urgent financial needs while keeping your long-term investments intact.

The lower interest rates, easy digital processing, and the ability to continue participating in market growth, a loan against shares can be an ideal financial bridge during emergencies or new opportunities.

FAQs

1. What are the benefits of taking a loan against shares?
You can access funds quickly without selling your shares and continue to benefit from potential price appreciation. Interest rates are also typically lower than personal loans.

2. How is the loan amount determined?
The loan amount depends on the market value of your pledged shares, the lender’s LTV ratio (usually 50–60%), and your repayment capacity.

3. Can I use any shares to secure a loan?
Lenders generally accept only listed shares from approved companies. Illiquid or unlisted shares are usually not accepted as collateral.

4. How long does it take to get approved for a loan against shares?
If you submit all required documents online, approval can be completed within a few hours to a couple of business days.

5. Do I have to submit physical documents?
In most cases, the process is fully digital. You only need to e-sign and link your demat account electronically.

6. Can I still receive dividends and bonuses while my shares are pledged?
Yes, you will continue to receive dividends and bonuses, though some lenders may hold them until repayment is completed.

7. How do interest rates on loans against shares compare with other loans?
They are generally lower than unsecured loans since shares serve as collateral, but slightly higher than secured home or vehicle loans.

8. What should I consider before taking a loan against shares?
You should assess your repayment ability and understand the risk of liquidation, if share prices fall significantly, the lender may sell pledged shares to recover dues.

Shriram Sharma

Shriram Sharma is a CFA Charterholder, Chartered Accountant (CA), and Financial Risk Manager (FRM) with deep expertise in fintech partnerships, lending distribution, and wealth products. Currently leading Strategic Alliances at Abhi Loans, he specialises in credit business growth, Loan Against Securities (LAS), and API-driven fintech integrations across the Indian financial ecosystem.

Selling your bonds may attract capital gain taxes and impede your long-term investment plans. Instead, if you take a loan against securities, you can arrange quick cash without liquidating your investments. Since the ownership remains intact, the borrower continues to earn dividends and profits as the market uptrends.

Not just that, but a digital loan against shares or bonds allows borrowers to pay at will, meaning they can pre-pay or part-pay the loan before the loan tenure ends without incurring any pre-closure charges. It is worth noting that only a few lenders levy no prepayment charges. Before discussing why a loan against bonds could be your best move, it is imperative to understand what it is.

What is a loan against bonds?

A loan against bonds is a type of loan you can avail of by pledging your bonds as collateral. The loan is available to anyone who holds bonds and is 18 or above. The loan amount one can unlock depends on the value of the pledged securities. The higher the value, the higher the credit limit you can get.

It is a type of secured loan that requires you to submit collateral. You can use it for different purposes, such as funding your child’s education, home renovation, medical emergencies, and debt consolidation. Since collateral reduces the lender’s risk, the interest rate (IR) is considerably low.

With that being the case, there could be no better move to fund your cash needs than a digital loan against stocks, a loan against securities, or an instant loan against securities. Let us now explore what makes borrowing against bonds your best move.

What makes it your best move when requiring urgent cash?

Quick access to cash

A loan against shares, bonds, mutual funds, or other marketable securities is a convenient way to access quick capital. With lenders like Abhi Loans, disbursal is possible in a few hours.

In such a case, you apply in the morning and get the loan amount in your account by noon. Today, most lending institutions accept digital applications relieving borrowers from physically visiting the bank or NBFC.

It saves them a lot of time and effort. So, if you choose to borrow against shares, bonds, and other listed securities, you get the loan amount on the same day you need it without waiting too long for application, approval, and disbursal.

A less costly alternative to unsecured loans

A secured loan costs less than an unsecured loan, and the interest rate is the difference. Since the collateral minimizes the lender’s risk, the former comes at lower interest rates than the latter.

Other charges, such as processing fees, are also nominal at a loan against bonds. When you take a digital loan against stocks or a loan against shares, the processing fee could range from 0.5% to 2%, varying from one financial institution to another.

Keeps the ownership intact

Another advantage of taking a loan against equity shares, bonds, or securities is that it allows you to stick to your investment plans. That means your investments keep benefiting you even if you pledge them to borrow money. When you sell your bonds to get funds, you may have to adjust your investment portfolio, and there is a possibility of missing out on future gains.

What adds to your trouble in such a case is that the proceeds gained from sales may attract capital gain taxes, which can be between 10% and 15%. Instead, if you take an instant loan against securities like bonds or equity shares, you keep the bond holdings and continue to earn benefits.

Credit history is no barrier

Some lenders do not check your credit score while sanctioning the loan. So, if you have a poor credit history, you need not worry. All you need to apply for the loan is proof of your investment portfolio and KYC documents. The hassle-free application process makes it a practical solution for those requiring urgent funds.  

Wrap up

The benefits above make an instant loan against stocks, bonds, and mutual funds a wise choice over other loan options. But then, it is crucial to mind the risks involved in this loan.

If you default on your EMIs, you may incur extra charges or penalties and even lose your holdings, as the lender reserves the right to sell your bonds in case of default to recover the due loan amount.

To conclude, a loan against shares, bonds, and other securities is a good move for everyone who holds bonds and needs urgent cash.

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There could also be some other charges, which may add to the total cost of the loan. If you have invested in the stock market, there are better and cheaper alternatives to personal loans. These include loans on mutual funds and instant loans against shares.

These loans bring you better terms on the interest rate, processing fees, and other charges. They can be your go-to choice when you need immediate cash for short-term requirements. You may use them for various purposes, such as home renovation, financing your child’s education, debt consolidation, etc.

One more thing that makes them a more reasonable choice is that you may get it within hours. Let us unveil some cheap loan alternatives to personal loans. But first, it is imperative to understand the total cost of a personal loan with interest added.

Personal loans

A personal loan is a financial product you can take to meet your varied fund requirements without pledging or selling off your existing assets. The interest rate for this unsecured loan is way too high.

The interest rate for personal loans could range from 8.5% to 49.5% (p.a), much higher than that for a secured loan, such as instant loans against shares and quick loan against mutual funds. If the processing fee (which could be between 2% and 6% of the loan value) is to be added, the loan costs much higher.

For example, if you take a personal loan worth Rs. 1 Lakh at an interest rate of 20% p.a. and a processing fee of 3% for two years, it will cost you Rs. 1, 40,000 excluding the processing fee, which sums up to Rs. 3000 in this case.

Alternatives to Personal loans

Loans against securities are better alternatives to personal loans. Although many low-interest loans are available out there, here are a few you may choose.

Loan against mutual funds

Top of the list is a loan against mutual funds (LAMF). It is one of the wisest options for those requiring immediate liquidity without selling off their MF units. Not only is it a low-interest loan, but it also lets you access flexible amounts. Minimum and maximum credit limits may vary from one Bank/NBFC to another.

The interest rate, which is the most crucial factor that determines the cost of the loan, may differ too. This cheap loan allows you to get up to 80% of the value of mutual funds holdings. While you unlock quick capital at lower interest rates, starting from 8% p.a., your investments remain market-linked and continue to give you returns, subject to the market condition.

Interest rates (IR) and processing fees applicable are considerably low, which makes it a cheaper loan option. While the IR may run from 8% to 16% per annum, the processing fee could be as low as 2% of the loan value.

loan against shares

An instant loan against shares or a loan against stocks is another alternative you can choose over a personal loan. When compared, the former costs less than the latter. That is again because of a lower interest rate and processing fee.

When taking this loan facility, your stock holdings act as collateral to secure the loan. The higher the value of your shares is, the more credit you can access by pledging them. Different lenders may have varied credit limits and interest rates. The IR could go up to 16% per annum, starting from as low as 8% p.a.

Another factor that makes it a cheaper personal loan alternative is that it includes no prepayment charges when taken from reputed lenders like Abhi Loans. Best of all, it allows borrowers to gain returns from their investments. As the cost of your shares increases, you become eligible to get a higher loan amount.

Loan against bonds

You may also opt for a loan against bonds for a lower interest rate and more flexible repayment facilities. Bonds are fixed-income instruments you may use to borrow money.

Here, as well, your bonds act as collateral to secure the loan. With such a loan, the tenure is short and the interest rate is low. The amount you can borrow is up to 60% of the value of your bond.

Conclusion

Although a personal loan may seem to be a suitable option to borrow money in times of financial emergencies, high-interest rates and other charges included in it make it less preferable to a loan against stocks and a quick loan against mutual funds. The latter is less costly in terms of interest rates and processing fees and hence, is a cheaper alternative.

But then, for a better deal, you must compare the interest rates and processing fees of varied lenders before considering taking an instant loan against shares. If you have investments in the stock market, do not look beyond these cheaper alternatives in need of immediate cash.

Abhiloans

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Go with what you think better fits your needs. If you choose the former option, the extra burden of taxes will fall on your pocket. Not everyone knows that the capital gained through the sale of shares is taxable. Even if you know, you will want to comprehend various taxes applicable when selling your stock market investments.

Taxes are an unavoidable part of life, but when it comes to selling shares, taxes can become complicated and uneasy on the pocket. Shareholders must consider various taxes associated with the sale of their securities before completing a transaction. Knowing the tax implications beforehand can help shareholders make informed decisions about their investments and maximize profits.

Understanding the types of capital assets

In times of a financial crunch, many shareholders sell their investments rather than take a loan against securities. In such a case, the transaction or income is considered a capital gain/appreciation, which attracts certain taxes.

Let us understand capital appreciation with an example. Suppose you purchased a share worth Rs. 100 and sold it for Rs. 150. Here, the income of Rs. 50 is taxable in either the capital gains head or the business head. It is worth noting here that the gains from intraday trading are taxable under the business head.

Contrary to this, the income acquired from long-term investments is taxable under the capital gains head. In the latter head, there could be two types of gains, depending on the shares or capital assets you sold off. These two types include long-term and short-term capital gains.

Long-term and short-term capital assets lean upon the period of holding, which is the duration for which you hold the assets in your account. If you retain the stocks for up to 12 months after purchase, they will remain a short-term capital asset. Shares held for more than 12 months are considered long-term assets. Both assets are taxed differently in the stock market.

So, if you choose to liquidate your stocks instead of taking a quick loan online against them, you must pay taxes under either of the above heads.

Capital Gain Tax (CGT)

The first tax you should take into consideration is the capital gains tax (CGT). The CGT is levied on profits made from selling shares. Depending on where you live, this rate may vary and depend upon your marginal income tax rate or may be set at a fixed rate regardless of your income level.

Tax on short-term capital gains

Under section 111A, if you sell your shares within 12 months of purchase, all proceeds will be considered short-term gains. Gains obtained by selling Securities Transaction Tax (STT) paid shares are taxable at 15% flat. On the other side, short-term capital gains coming from e sale of non-STT paid shares, debentures, bonds, and other listed instruments are taxed under the income tax slabs.

If the SST is unpaid, the sale of such bonds, shares, and other securities, is taxed at a margin rate of the holder from 10% to 30% plus a cessation of 3% plus a surcharge. In the case where debt mutual funds are sold within three years, gains from such sales are regarded as a short-term capital gain and be taxed on the marginal income tax slab applicable to the holder.

Away from all this taxation, there is a catch for investors. You can adjust your short-term capital gain against the basic exemption limit of Rs. 2.5 lakh. For example, your annual short-term capital gain is Rs. 4 lakh, and you had no other income within this period.

In this case, you won’t have to pay 15% on 4 lakh. You can get 2.5 lakh exempted, meaning that you have to pay tax only on 1.5 lakh. However, this is applicable only if you are a resident and individual. The resident is one who had been in India for 182 days during the previous year.

Tax on long-term capital gains

Section 10 (38) states that the income generated from the sale of shares held for more than one year is regarded as long-term capital gains. In simpler terms, if you sell your shares within three years of the date of acquisition, it will be treated as long-term capital gains.

Shares listed on recognised stock exchanges and mutual funds must be held for a minimum of one year before being sold and STT-paid sales are subject to 10% tax on profits over Rs 1 lakh. Profits from the sales of non-STT paid bonds, debentures, shares, and other listed instruments are subject to long-term capital gains tax at a rate of 10% when sold after one year.

Any earnings from the sale of assets other than STT-paid shares and mutual funds within three years of the date of acquisition will be taxed at a rate of 20%, plus the applicable surcharge and cess. When you sell your debt mutual fund after three years or longer, any revenue from such sales is considered a long-term capital gain.

What if you take a loan against shares instead of selling them?

A loan against stocks or shares is a wiser choice than selling them if you want to avoid paying capital gain tax. This way, the borrower continues to enjoy the benefits of their investment as it stays linked to the market. Another plus is the loan against share interest rate is lower than that of the personal and credit card loan. So, if you need urgent cash, borrowing against shares is better than liquidating them.

The Bottom Line

Before selling their shares, you must understand and assess how much tax you need to pay on the income gained through the sale of your holdings. It will help you make a better and more informed decision.

Abhiloans

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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.

Covered Calls 

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. 

NBFCs

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.

Abhiloans

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