You have to build an investment portfolio. That’s how your money grows. Be it bonds, equity shares, mutual funds, FDs and so on, there are a number of investments you can make. But, what if your investments can do more than just grow?
It is tough to arrange money in an emergency, especially if you do not have substantial savings. It’s a difficult situation and you have to choose between raising funds or liquidating your investments. Liquidating investments is never a great idea as building a portfolio is a difficult and time consuming process.
In times of difficulty or a financial crisis, why not avail loan against securities? You will have to pledge your securities as collateral. Loans against collateral are Secured loans. These loans are cheaper than the Personal Loans many citizens avail.
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Following are some of the securities and certificates which are widely accepted as collateral for Loan against securities:
Property is one of the most common collateral pledged to avail a Home Loan. A property can be both residential and commercial. Loans against property are only given to the title deed holder or a co-applicant who is a title deed holder.
Loan against property (LAP) should ideally be used as guarantee/security for higher amounts needed in cases of education, purchases of a house and so on, while availing a loan. Secured Loans have a lower rate of interest compared to an unsecured personal loan.
According to IRDA, no loans can be taken against Unit-linked insurance plans (ULIP) and term life insurance policies.
Nevertheless, loans can be taken on insurance policies such as endowment life insurance and money-back plans. Loan amount depends on the surrender value of the policy. A Loan amount of a maximum of 80- 90% of the surrender value is granted as a loan.
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Government bonds like NABARD, Sovereign Gold Bonds and others can be used as a collateral to secure a loan. Yes, Government bonds are not liquid assets, but they are highly reliable as they are issued by the Government.
National Savings Certificate is another security which you can pledge to avail a loan. The interest rate charged on loan against NSC is lower than personal loans.
The quantum of loan varies from bank to bank. The Loan to Value (LTV) is 85-90% of the NSC. Also, the tenure of the certificate decides the loan amount. An NSC certificate of over 3 years gets the largest amount of loan against it. You can also repay the loan in advance.
Banks also grant loans against Fixed Deposits. You have to pledge your Term Deposit with the bank. The interest rate charged will be lesser than personal loans. Availing a personal loan against FD is a simple process. It takes less than a day to get the loan approved.
Despite pledging your securities as collateral, you continue to enjoy ownership benefits of these shares, mutual funds and other securities like rights, bonuses and dividends.
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