Needing money for a medical expense, business payment, or another planned cost does not always mean an investor has to sell shares or mutual funds. A loan against securities allows eligible investments to be pledged as collateral in exchange for a borrowing limit.
The amount available depends on the value and type of securities pledged and the applicable LTV, while market movements can also affect the limit over time.
How Investors Can Access Liquidity against Existing Securities
Investors can pledge eligible shares or mutual fund units with a lender. The borrowing limit is based on their value and the applicable loan-to-value ratio. For anyone trying to understand what loan against securities is, it is a secured borrowing facility backed by investments.
The borrower can use money within the limit and repay under agreed terms. Depending on the facility, interest may apply only to the amount used.
What Types of Securities Can Be Pledged?
The securities that can be pledged depend on the lender’s approved list, but may include eligible shares and mutual fund holdings.
Eligible Shares
Listed shares accepted by the lender may be pledged through a supported demat account. Their market value and applicable LTV help determine the borrowing limit. Investors should confirm whether their holdings are eligible instead of assuming every listed share can be pledged.
Eligible Mutual Funds
Approved equity and debt mutual funds may also qualify. LTV limits can differ between fund categories because their risk characteristics vary. Checking scheme eligibility and LTV shows how much the holdings may support.
How Is the Eligible Loan Amount Determined?
The eligible loan amount is based on the value of securities accepted by the lender. The applicable loan-to-value ratio is then applied to eligible holdings. Security categories, such as shares, equity funds and debt funds, may have different LTV limits.
Holdings that are not on the lender’s approved list are excluded. Since pledged security values can change with market movements, the available borrowing limit may increase or decrease over time.
What Is the Difference between LAS and LAMF?
LAS and LAMF both allow investors to borrow against existing investments, but they differ mainly in the type of securities accepted as collateral.
| Point | LAS | LAMF |
| Meaning | Borrowing against eligible securities | Borrowing specifically against eligible mutual funds |
| Collateral | May include approved shares and mutual funds | Approved mutual fund units |
| Scope | Covers different eligible security categories | Focuses on mutual fund holdings |
| LTV | Depends on the security pledged | Depends on the eligible fund category |
| Suitable For | Investors holding different approved securities | Investors using mutual funds as collateral |
What Happens if the Value of Pledged Securities Falls?
Shares and mutual funds can change in value after they are pledged. If collateral value falls, the eligible borrowing limit may also reduce. This can create a shortfall when the amount already used is above the revised limit.
The borrower may then need to repay part of the outstanding amount or provide additional eligible securities. If the shortfall is not corrected within the required period, charges or other lender action may apply under the agreed terms. Borrowing close to the maximum limit can therefore leave less room for market declines.
Who Should Consider a Loan against Securities?
A loan against securities may suit investors who have eligible holdings and need money without selling those investments at that point.
- Investors meeting a planned expense and expecting to repay within a manageable period.
- Business owners dealing with a short working-capital requirement, where permitted.
- Investors who prefer pledging approved holdings instead of selling them immediately.
- Borrowers who understand that market movements can affect the available limit.
- Investors who are comfortable borrowing only as much as they need.
It may be less suitable when repayment is uncertain, or a fall in collateral value would make it difficult to meet a shortfall.
What Should Investors Check before Choosing a LAS Facility?
The borrowing limit should not be the only factor considered when choosing a LAS facility. Investors should review how interest is calculated, which securities are eligible and the applicable LTV for each category. It is also important to check processing fees, stamp duty, servicing costs and overdue charges.
Repayment terms, margin requirements and the process for releasing pledged securities after repayment should also be understood. Reviewing these conditions beforehand can help investors assess the overall borrowing arrangement more carefully.
Final Thoughts
A loan against securities can provide access to money without requiring an immediate sale of eligible investments. Its usefulness depends on the amount needed, the securities available for pledging, borrowing costs and the investor’s ability to manage repayment.
Before proceeding, review eligibility, LTV, interest, fees and margin rules carefully. Borrowing only what is required can also leave more room to manage changes in the value of pledged securities.
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