Loan Against Securities (LAS) is a financial tool by which you can utilize your investments to access cash without selling off your assets. LAS offers flexibility for various needs, such as emergencies or personal and business purposes. You can tap into the value of assets like bonds​​​, Mutual Funds​​​, stocks​​​ or insurance policies while still retaining ownership by using them as collateral. In this post, you will learn more about LAS and whether this is the right solution for you. 

Meaning of LAS 

Loan Against Securities is a credit facility or overdraft with which you can access funds without selling your securities. You can pay the interest only on the amount utilised and for the period it is utilised, on a renewal basis after 1 year. This is an easy way to use your securities to get money immediately while retaining ownership. 

Benefits of Getting LAS

There are numerous benefits of LAS, such as:

1. Retain Ownership of Investments

The LAS lets you hold onto your investment assets and maintain ownership over them. Keeping your securities as loan security ensures that you can still benefit from any increase in their value or receive dividends while repaying the loan without having to sell your investments. It enables you to retain and increase your assets while fulfilling your short-term financial requirements.   

2. Lower Interest Rates

Lower interest rates make borrowing more affordable and encourage responsible financial management. With a Loan Against Securities (LAS) from banks, interest is charged only on the amount utilised and for the duration it is used. The rate of interest is based on the type of security pledged, ensuring a more cost-effective financing option.

3.  Flexible Loan Amount

The loan amount you can borrow is connected to the value of your security. It usually ranges from 50% to 80% of the securities' value. This adaptability ensures that you are not borrowing excessively or inadequately, ultimately allowing you to access funds based on your needs.   

4. Online Loan Processing and Disbursement  

The digital loan process and minimal documents for these loans are another key benefit. This feature offers the borrowers an easy choice when timing is crucial, and they need funds quickly. The loans are available online for select banking customers, and you can expect fast approvals. 

5. Overdraft Facility  

A key aspect of this loan is its overdraft facility, where you can access the required amount and interest is applied solely to the portion used. This feature makes it a cost-efficient choice for borrowing since you are not charged for unused funds.     

6. Less Documentation  

The digital application procedure by many banks lets you get approved instantly without piles of documentation. This way, the loan application process is streamlined and offers faster access to funds.

7. High LTV Ratio

ICICI Bank offers a high Loan-to-Value (LTV) ratio. It means that you can take out a large loan against securities. You can safeguard up to 50% of the Net Asset Value (NAV) of equity Mutual Funds. Debt funds offer more freedom, allowing you to borrow up to 80% of the NAV. 

Are You Eligible for LAS?

• Age Criteria – Applicants must be between 18 and 75 years old.

• Contact Requirements – A valid email ID and mobile number are mandatory for verification.

• Demat Shares – Only individuals can apply. HUFs, companies, partnerships, and sole proprietors are not eligible.

• Mutual Funds

• Equity-Oriented Funds – Only individuals can apply.

• Debt Funds/FMP/ETF – Individuals, HUFs, companies, partnerships, and sole proprietors are eligible.

• Fixed Maturity Plans (FMP) – Open to individuals, HUFs, companies, partnerships, and sole proprietors.

• Exchange Traded Funds (ETF) – Eligible applicants include individuals, HUFs, companies, associations, partnerships, sole proprietors, trusts, and societies.

• Life Insurance Policies – Available to individuals, companies, partnerships, sole proprietors, and HUFs.

• GOI Bonds – Individuals, HUFs, and trusts can apply.

Note: Loans are granted only against approved securities as determined by ICICI Bank.

What to Know When Taking LAS?

Important considerations before taking LAS are:

1. Meet the Eligibility Criteria 

Remember to check the eligibility criteria and ensure you meet those factors before submitting your loan application. Always make sure that you meet all the key criteria mentioned above. 

2. Analyse Your Investment Value

Review the current market worth of your investments and the LTV ratio provided by the lender to estimate the loan sum you can acquire and strategise accordingly.   

3. Stay Vigilant of Charges  

Ensure you are aware of more than just interest rates when borrowing money. Lenders might also charge processing fees or maintenance costs along with prepayment penalties. It's helpful to know about the costs upfront to avoid any surprise expenses in the future.   

4. Plan Loan Repayment Smartly  

LAS provides flexible repayment choices to accommodate your circumstances effectively; failing to repay the loan could result in the forfeiture of your pledged assets, so it's crucial to devise a repayment strategy that aligns with your financial situation to safeguard your investments.   

5. Keep Check of Market Conditions

The value of your investments determines the loan amount you can borrow. If the market value of your securities drops, the lender may ask for additional collateral to cover the shortfall. Staying informed about market trends can help you manage and avoid such situations effectively.  

Conclusion 

LAS is a secured loan which provides an instant solution by allowing you to access immediate funds while keeping your assets intact. It is ideal for individuals who need cash without selling off their investments too quickly or losing out on potential returns. 

However, assessing your ability to repay the loan, the worth of your securities, and any risks involved before moving ahead is helpful. Take the time to make an informed choice to optimise the advantages of a Loan Against Securities fully.