If you have stocks and need emergency cash, it’s best to take out a stock loan. It is important to remember that this is like a mortgage i.e. gold loans, unless you pay the bank has the right to sell your shares and get the money back. money. So you need to make sure that you are able to repay the loan.
Minimum and maximum amount of the loan against shares
This amount may vary from bank to bank. The country’s largest lender, State Bank of India, offers a minimum loan amount of Rs 50,000, while the maximum loan amount is Rs 20 lakhs.
It is important to remember that in the case of SBI and it would be the same for most banks, you need to have a margin of 50%. This means that if you decide to take a loan of Rs 5 lakhs, you must keep shares up to Rs 10 lakhs in market value.
Your shares in the demat account would be pledged and you will not be able to sell them unless you pay the bank and upon receipt of the money the lien on the shares is removed. It is important to note that there would be a list of securities approved by each bank, against which you can pledge your shares. These would be “A” group shares and as specified by the lender. So in short, you can’t take all the actions you could possibly want.
Why is the equity loan better than the personal loan?
SBI currently charges an interest rate of 9.75 percent on equity loans. In contrast, personal loans can cost you a minimum interest rate of almost 13%. This makes the equity loan much more attractive.
The interest rates charged by SBI on loans against NSC / KVP and RBI Relief Bonds are much higher at 11.90 percent.
Various charges on loan for shares
As with most loans, banks charge a processing fee and of course there is always the GST fee. At present, the State Bank of India charges a processing fee of 0.75% of the loan amount. So if you get a loan for Rs 10 lakhs shares, be prepared to pay at least Rs 7500 as processing fee. Other than that, there would be a GST charge if applicable.
Just like stocks, you can also take out a loan against your mutual fund units. The interest rate and other charges are unlikely to differ much.
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Article first published: Sunday, September 13, 2020, 8:00 a.m. [IST]