Loan Against Securities (LAS): Borrowing Against Investments
Loan Against Securities (LAS): A Practical Guide
A Loan Against Securities (LAS) is a loan offered by banks and NBFCs against your investments like shares, mutual funds, and bonds. You pledge your holdings as collateral. Indian investors use LAS for short-term needs without selling their investments.
This guide explains how LAS works.
What Is LAS?
LAS is a secured loan against approved investments. You pledge:
- Equity shares (listed)
- Mutual fund units
- Bonds and debentures
- Insurance policies
The lender holds the pledge until you repay.
How LAS Works
When you apply:
- You select the investments to pledge
- The lender values them
- You get a loan based on a margin (haircut)
- You can use the loan freely
- The investments remain in your name
Dividends and bonus benefits stay with you.
Why LAS Matters
LAS matters for three reasons:
- It gives quick credit without selling investments
- It avoids tax on long-term capital gains
- It supports short-term needs
A clean LAS supports flexible borrowing.
Common Uses
Borrowers use LAS for:
- Working capital for business
- Short-term cash needs
- Emergency expenses
- Buying more investments
- Bridging cash flow gaps
The flexibility makes LAS useful.
Loan-to-Value Limits
LTV depends on the security type:
- Equity shares: 40 to 50 percent of value
- Mutual funds (equity): 50 percent
- Mutual funds (debt): up to 75 percent
- Bonds and fixed deposits: higher LTV
The margin protects the lender from market falls.
Benefits
LAS offers:
- Quick approval
- No need to sell investments
- Lower rates than personal loans
- Use for any purpose
These benefits suit short-term cash needs.
Risks
Risks include:
- Margin call if security value falls
- Higher rates than home loans
- Forced selling if you default
- Market volatility affects LTV
A clear plan helps manage these.
Interest Rates
LAS rates are usually:
- 9 to 14 percent per year
- Higher than home loans, lower than personal loans
Rates depend on the security type.
Common Mistakes
Borrowers often:
- Pledge volatile securities
- Borrow near the maximum LTV
- Skip checking margin call rules
- Use LAS for long-term needs
A clean plan avoids these errors.
Tips for Better Use
A few habits help:
- Pledge stable investments
- Keep buffer below maximum LTV
- Use for short-term needs only
- Track market value
- Pay back quickly
Margin Call
A margin call happens when the value of your pledged investments falls. The lender may:
- Ask you to pledge more securities
- Ask you to pay part of the loan
- Sell some pledged securities
Watch the market and respond quickly.
How to Apply
A common method:
- Choose a lender offering LAS
- List the securities to pledge
- Submit application
- Lender values the securities
- Receive disbursement
The process is often quick.
LAS vs Selling Investments
The two differ:
- Selling: full cash but may trigger tax
- LAS: cash access while keeping investments
LAS suits temporary needs.
LAS vs Personal Loan
The two differ:
- LAS: secured by investments, lower rate
- Personal loan: unsecured, higher rate
LAS is cheaper if you have securities.
Pledged Investments and Corporate Actions
While pledged:
- You still receive dividends
- Bonus and split shares are credited to you
- Voting rights stay with you in most cases
The investments work for you while pledged.
Key Takeaways
- LAS is a loan against investments
- LTV depends on security type
- Lower rates than personal loans
- Quick approval and easy access
- Indian investors use LAS for short-term needs
LAS gives access to cash without selling your investments. Use it carefully, watch the market, and let your portfolio work as a financial tool when needed.
When Not to Use LAS
Avoid LAS for:
- Long-term funding needs
- Highly volatile markets
- Speculative trading
These create extra risk.
