Selling investments during an unexpected financial need can disrupt your long-term wealth plan. A Loan Against Securities (LAS) offers another option by allowing you to borrow against eligible investments instead of liquidating them immediately.
Under this arrangement, your approved securities are pledged to the lender and continue to remain invested, while you receive a loan based on their eligible value. The amount you can borrow depends on factors such as the type of security, its market value, the lender's internal policy and the applicable loan-to-value ratio.
For investors, LAS can be useful for short-term liquidity needs, but it also comes with risks. Market fluctuations can reduce the value of pledged securities, which may require you to provide additional collateral or repay part of the loan.
Key Takeaways
- A Loan Against Securities allows you to borrow by pledging eligible investments instead of selling them.
- Shares, mutual fund units, bonds and other approved securities may be accepted, depending on the lender.
- The loan amount is based on the market or eligible value of the pledged securities and the lender's applicable margin.
- Your investments may continue to participate in market movements while they remain pledged.
- A fall in the value of pledged securities can trigger a margin shortfall or additional collateral requirement.
- LAS is generally more suitable for temporary liquidity needs than for financing speculative investments.
What Is a Loan Against Securities?
A Loan Against Securities is a secured credit facility where you pledge eligible financial investments as collateral to borrow money from a bank or other permitted lender.
Instead of redeeming mutual funds or selling shares, you temporarily create a pledge over the securities. The lender then sanctions a loan based on the eligible value of those assets.
The securities remain pledged until the outstanding amount is repaid and the pledge is released.
For securities held in dematerialised form, pledges are created through the depository system. SEBI's framework governs the creation and invocation of such pledges and requires depositories to maintain appropriate records.
How Does a Loan Against Securities Work?
The process usually starts with the lender evaluating the securities you want to pledge.
Not every investment will qualify. Lenders maintain an approved list of shares, mutual fund schemes, bonds or other instruments that they are willing to accept as collateral.
The process generally involves the following steps:
- Select Eligible Securities:You identify investments that appear on the lender's approved list.
- Pledge the Securities: Eligible holdings are marked as pledged through the relevant depository or operational process.
- Lender Determines Eligible Value: The lender applies its prescribed margin or loan-to-value ratio.
- Loan Is Sanctioned: You receive access to the approved amount, subject to terms and documentation.
- Portfolio Value Is Monitored: The lender periodically monitors the value of the pledged assets.
- Pledge Is Released After Repayment: Once the outstanding dues are cleared, the securities are released from the pledge.
The actual process may differ across lenders and asset classes.
Which Securities Can Be Used for a Loan Against Securities?
The securities accepted under LAS vary by lender. Common categories may include:
- listed equity shares;
- equity mutual fund units;
- debt mutual fund units;
- bonds;
- debentures;
- government or approved fixed-income securities; and
- other lender-approved investments.
For mutual fund units, RBI guidance states that the amount of advance should generally be linked to the NAV, repurchase price or market value, as applicable, rather than the face value of the units.
A lender may also exclude securities that are highly volatile, illiquid, locked in or otherwise unsuitable as collateral.
How Much Can You Borrow Against Securities?
You generally cannot borrow the full market value of your investments.
Lenders apply a margin or loan-to-value ratio to create a buffer against market fluctuations. The applicable percentage depends on the type of security and the lender's policy.
For example, if eligible securities are valued at ₹10 lakh and the lender permits a 50% loan-to-value ratio, the maximum eligible loan may be around ₹5 lakh.
This is only a simplified illustration. Actual eligibility may change based on:
- asset type;
- price volatility;
- liquidity;
- concentration in a single security;
- lender policy;
- regulatory requirements; and
- changes in market value.
RBI's current regulatory handbook notes different LTV and lending limits depending on the type of lender and security. For scheduled commercial banks, equity shares and equity mutual funds in dematerialised form are subject to prescribed lending parameters, while terms for debt mutual funds and certain bonds may depend on the bank's internal policy.
What Is Margin in a Loan Against Securities?
Margin is the portion of the security value that the lender does not finance.
It acts as a cushion against a fall in the value of the pledged investments.
Suppose your securities are worth ₹8 lakh and the lender permits a loan of ₹4 lakh. The remaining ₹4 lakh effectively represents the margin.
If the market value of the pledged investments falls significantly, the loan may exceed the permitted ratio. In such cases, the lender may ask you to:
- pledge additional securities;
- repay part of the outstanding loan; or
- restore the required margin within a specified period.
This is one of the most important risks to understand before choosing LAS.
What Is a Margin Call?
A margin call occurs when the value of your pledged securities falls enough to breach the lender's required collateral level.
Consider an example.
You pledge securities worth ₹10 lakh and receive a ₹5 lakh loan. If the value of those securities falls to ₹7 lakh, the lender may no longer have the required collateral buffer.
The lender may then ask you to add more eligible securities or reduce the outstanding loan.
If you fail to meet the requirement, the lender may have the right to invoke or sell the pledged securities in accordance with applicable rules and the loan agreement.
SEBI updated its pledge framework in 2026 to align the invocation process with legal requirements, including reasonable notice provisions before pledged assets are sold in relevant cases.
Loan Against Securities Example
Suppose you hold the following investments:
| Investment | Current Value |
|---|---|
| Equity Mutual Funds | ₹6,00,000 |
| Listed Shares | ₹4,00,000 |
| Total Portfolio Value | ₹10,00,000 |
Assume the lender considers ₹8,00,000 of these holdings eligible and applies an effective loan-to-value ratio of 50%.
Your potential loan eligibility may be:
₹8,00,000 × 50% = ₹4,00,000
You continue to own the securities, but they remain pledged to the lender until the loan conditions are satisfied.
If the eligible value falls, your borrowing limit may also decline.
What Can a Loan Against Securities Be Used For?
LAS is often used to meet temporary financial requirements without disturbing long-term investments.
Possible uses may include:
- medical or family expenses;
- business working-capital needs;
- education-related expenses;
- short-term cash-flow gaps;
- planned large expenses; or
- other lender-approved personal requirements.
However, permitted usage depends on the lender and applicable regulations.
RBI guidance for advances against mutual fund units states that such loans should be purpose-oriented and should not be used to subscribe to or boost another mutual fund scheme or to purchase shares, debentures or bonds.
What Are the Benefits of a Loan Against Securities?
You May Avoid Selling Long-Term Investments
One of the main advantages is that you may not need to liquidate your portfolio to meet a temporary cash requirement.
This can be useful when the investment continues to fit your long-term financial plan.
Your Investments May Continue to Remain Invested
The pledged securities generally continue to remain in your ownership while the pledge is active.
Their market value can therefore still rise or fall during the loan period.
It Can Provide Liquidity Against Existing Assets
LAS converts part of your eligible investment portfolio into borrowing capacity without requiring an outright sale.
This can help investors handle short-term liquidity needs.
Interest Is Usually Charged on the Amount Used
Depending on the structure of the facility, some LAS products operate like an overdraft, where interest may be charged on the amount actually utilised rather than the entire sanctioned limit.
The exact structure varies by lender.
It May Reduce the Need for Unsecured Borrowing
Because the loan is backed by financial assets, the lender has collateral against the credit facility.
However, this does not automatically mean LAS will always be cheaper than every unsecured loan. Interest rates and charges should still be compared carefully.
What Are the Risks of a Loan Against Securities?
LAS is secured by market-linked assets, so the primary risks are different from those of a conventional personal loan.
Market Value Can Fall
Shares and mutual funds can decline in value.
A significant fall can reduce your collateral cover and create a margin shortfall.
Securities May Be Sold if You Do Not Meet a Margin Call
If you do not restore the required margin within the stipulated period, the lender may invoke the pledge according to the agreement and applicable rules.
This could force the sale of investments at an unfavourable time.
Borrowing Can Disrupt Long-Term Planning
Although you do not sell the investment initially, the loan creates an additional financial obligation.
If repayment becomes difficult, the same assets you intended to hold for long-term goals could ultimately be affected.
Concentrated Portfolios Carry Higher Risk
If most of the pledged value comes from one or two stocks, even a sharp fall in a single security can reduce the available collateral significantly.
A diversified portfolio may be less sensitive to one company-specific event, although market risk still remains.
Interest and Other Charges Apply
You should consider:
- applicable interest rate;
- processing fee;
- renewal charges;
- pledge-related charges;
- documentation fees; and
- penal charges, if any.
The total borrowing cost matters more than the headline interest rate alone.
Loan Against Securities vs Personal Loan
Both can provide liquidity, but their structures are different.
| Feature | Loan Against Securities | Personal Loan |
|---|---|---|
| Security Required | Yes | Usually No |
| Collateral | Eligible financial investments | None |
| Market Risk | Yes, collateral value can fluctuate | No collateral market risk |
| Loan Amount | Depends partly on security value | Depends largely on income and credit profile |
| Investment Sale Required | Usually No | Not applicable |
| Margin Call Risk | Yes | No |
| Interest Structure | Depends on lender/product | Usually fixed or reducing-balance EMI structure |
The better option depends on your financial situation, borrowing purpose and ability to manage the associated risks.
Who May Consider a Loan Against Securities?
LAS may be relevant if you:
- already hold eligible investments;
- need funds for a temporary requirement;
- do not want to immediately liquidate long-term holdings;
- have sufficient repayment capacity; and
- understand the impact of market fluctuations on pledged collateral.
It may be less suitable if your portfolio is highly volatile, you need long-term borrowing or you may struggle to meet a margin call during a market decline.
What Should You Check Before Taking a Loan Against Securities?
Before borrowing, review both the loan terms and the quality of the assets being pledged.
Key points include:
- eligible securities;
- applicable loan-to-value ratio;
- interest rate;
- processing and pledge charges;
- repayment structure;
- margin requirements;
- margin-call timelines;
- lender's right to invoke pledged securities;
- prepayment conditions; and
- whether the borrowing fits your overall financial plan.
You should also consider whether selling a small portion of an investment, using an emergency fund or choosing another credit option may be more appropriate.
Does a Loan Against Securities Affect Your Investment Returns?
The securities themselves may continue to generate market-linked returns while pledged.
For example, an equity mutual fund can still rise or fall based on its underlying portfolio.
However, your effective financial outcome should also account for the interest and charges paid on the loan.
If your portfolio earns 9% during a period but your borrowing cost is 11%, you should not treat the investment return in isolation. The loan cost affects your overall financial position.
Is a Loan Against Securities the Same as Selling Your Investments?
No.
When you sell an investment, you exit the holding and receive the sale proceeds.
With LAS, you generally retain ownership while the security is pledged as collateral.
However, if you fail to meet repayment or margin obligations, the lender may eventually invoke the pledge and sell the securities according to applicable terms.
Can Mutual Funds Be Used for a Loan Against Securities?
Certain mutual fund units may be accepted, depending on the lender and scheme eligibility.
RBI guidance states that eligible mutual fund units should generally have completed any applicable lock-in requirement, and the advance should be linked to the relevant NAV, repurchase price or market value.
Not every scheme will qualify, and lenders may apply different margins to equity and debt-oriented funds.
Conclusion
A Loan Against Securities can help you access liquidity without immediately selling eligible investments. This can be useful when the financial need is temporary and your underlying investments remain aligned with your long-term goals.
However, LAS should not be viewed as risk-free borrowing. A fall in the value of pledged securities can reduce your borrowing capacity, trigger a margin call and, in some cases, lead to the sale of pledged assets.
Before proceeding, compare the borrowing cost, eligible securities, margin requirements and repayment terms. The decision should fit both your immediate liquidity requirement and your broader investment plan.
