Have emergency funds to handle margin calls in volatile markets

The Reserve Bank of India (RBI) has raised the per-individual limit on loans against shares (LAS) offered by banks from 20 lakh to 1 crore.

- HIMALI PATEL

The higher ceiling will allow investors to unlock more capital from their portfolios without selling their holdings.

Both banks and non-banking financial companies (NBFCs) offer LAS. “As the restriction for banks for offering LAS was %20 lakh, most high-net-worth individual (HINI) LAS customers went to NBFCs for this loan, until now,” says C R Chandrasekar, chief executive officer, DhanLAP.

How it works

The borrower's securities are pledged as collateral. While shares remain pledged, they cannot be sold, though dividends and other corporate benefits continue to accrue. Once the loan is repaid, the shares are unpledged. Interest rate depends on the borrower's profile and the lender.

“Rates usually range between 9 and 12 per cent per annum,” says Harsh Vira, chief financial planner and founder, FinPro Wealth.

“For HNI clients or bundled offerings, rates go below 10 percent,” says Jugal Mantri, executive director and chief executive officer, Anand Rathi Global Finance.

“The Reserve Bank of India’s margin requirement is 25 per cent for demat shares and 50 per cent for physical shares,” says Trivesh D, chief operating officer, Tradejini.