How can I get a loan against my shares online?

Taking a loan against your shares helps individuals and businesses stay aligned with financial goals and manage a cash crisis better.

Every individual or business is in need of periodic funding to improve cash flows and also align with financial goals better. Sticking to a financial plan is easier when reserves are ample. However, this may necessitate the borrowing of funds from banks or financial institutions from time to time.

In this context, it is pertinent to note the important role that shares play in offering immediate liquidity for one’s needs. Holding shares and stocks is useful for both individual investors and companies. Based on the quality of the shares one owns, a bank or financial institutions may extend credit to the business – this is known as a ‘loan against shares’.

Why take loan against shares?

The loan against securities is a term loan granted by financial institutions and banks against the equity shares you or your business owns. You need not disrupt your long term investment plan by liquidating immovable assets such as property; instead, you can avail of a more financially flexible option of taking a loan against your equity shares. It is a faster and more cost-effective solution (at least 100 to 200 basis points lower on interest cost) and saves your other securities, such as gold and property, from coming into the ambit of loans.

Businesses with concrete expansion plans, or those looking for funding to acquire new processes, equipment or skilled manpower to upscale their operations can consider the loan against shares option. It can also be put to use by salaried individuals for such personal requirements as financing children’s higher education or paying for children’s marriage, or even making the payments on a second home.

When you take a loan against shares, you need not sell your shares or give up the bonuses and other accruements on them. The shares are simply pledged to the financial institution or bank for the loan tenure. They are not owned by the lending institution in any form.

How to apply for it

You can apply for a loan against shares online by entering your details on the lender’s website and asking for a call back to know more about the product and its benefits. If you have the requisite information already, you can proceed to fill out the lender’s application form online and submit it to the nearest branch.

Meanwhile, you must dematerialise your shares. You can ask the lender for a list of approved shares and securities: no other securities will be entertained. Peruse the lender’s loan brochure thoroughly so that you are conversant with service charges, interest rates, and other fees. Also get your paperwork in order: the lender will ask to see bank statements for at least one year, income proof, balance sheets, profit and loss statements (in case of business loans), details of other loans taken, etc. 

Once the lender approves your documentation and shares, a current account will be opened in the business’s or individual’s name. You can collect the funds from here, and also pay your loan EMIs to this account.

3 major benefits of zero balance savings accounts

There are some noteworthy benefits for opening and operating a zero balance savings account. We examine what these are.

You work hard all your life to provide security and every material comfort to your family. Early on in your working life, you realise that to attain security and financial freedom for the future, you must periodically save money and make investments.

The money you save can help you in a range of situations. Your savings corpus can help you when there is an emergency medical procedure that you or a family member needs to undergo. It can pay for your children’s future education. It can help you in setting up a retirement fund for yourself and your partner. It can also help you bolster the savings of your retired parents so that they may live comfortably in their senior years.

For this, the easiest way to park your surplus funds is to deposit them in your savings account. However, instead of using your usual account, you could consider opening a zero balance savings account. The following are three major advantages of this type of account:

1. You do not need to check if the account balance is maintained. The hassle with other savings bank accounts is that you have to constantly maintain the minimum balance as stipulated by the bank. Failing to maintain the account balance invites a penalty. As opposed to this, the zero balance savings account need not be monitored for account balance at all. Since there is no minimum balance stipulation, you need not worry about penalties and fees being levied every quarter.
2. You can use it as an expense account. As mentioned above, most savings bank accounts put you in a spot when your account balance dips below a minimum balance. Hence, opening a zero balance savings account is a good option if you use it as an expense account. You can lock your savings in another savings account, while using the no balance account to pay bills for maintenance, utilities, groceries, food, travel, entertainment, etc. There is no limit on the maximum number of transactions using this account. With this step, you create an expense account that is separate from the account that stores your valuable savings.
3. You get access to all banking services. As the holder of a zero balance savings account, you get a debit card and pass book from the bank. You also get access to Internet banking, email or paper bank statements and SMS and/or email alerts every time you make a transaction. Also, the bank pays interest on the residual funds in the account.

Is a zero balance savings account a good choice?

A zero balance savings account takes away the stress of maintaining a minimum balance in the account every month, and has some other benefits too.

In today’s times, it is imperative that everybody have a savings bank account. Whatever one’s station in life, whatever one’s income and spending habits, one must have a safe place to deposit one’s money and even withdraw it when necessary.

However, while many people with access to a bank do have a savings bank account, it often comes with the added stress of maintaining a minimum balance per month. Most banks specify a minimum balance of Rs 5,000, while some premium banks may insist on a minimum balance of Rs 25,000 or more. If the account balance goes below the specified amount, the bank levies a penalty on the same.

A new concept in savings bank accounts – the zero balance saving account – is hence, finding favour among people. As the name suggests, the zero balance saving account is encumbered by the minimum balance condition. The account holder can operate this account in the usual ways – deposit or withdraw money, transact using a bank debit card, make cheque transactions, etc.

As per a mandate from the RBI, all banks now offer a Basic Savings Bank Deposit Account (BSBDA). Several banks are slowly offering the zero balance condition to their usual savings bank products as well.

Additionally, those with salary accounts and eligible for the Pradhan Mantri Jan Dhan Yojana (PMJDY) can open zero balance savings accounts. The PMJDY is a financial inclusion scheme to make banking services accessible to all Indians. The account holder gets a debit card, cheque book, access to Internet banking and a passbook. However, the cheque book is free for certain number of leaves every year, and subsequent requests for cheque books are charged. Also, there is a charge on numbers of transactions conducted after a stipulated number.

The procedure for opening this account is the same as other accounts – one must fill in the bank’s application form and submit KYC documents (ID proof and address proof).

This type of account is useful for those who mainly like to use their savings accounts for deposits and who do not actively bank every day, such as senior citizens. However, keeping the account unused for a long time can render it inactive. The bank must authorise the account to become active again on the customer filling out the relevant documents for the same.

What is ‘credit score’ and how does it work?

Understanding how credit score works is crucial to knowing your credit worthiness and the rate of interest you will be charged on debts.

In today’s world, with every bank and financial institution offering loans for personal as well as professional needs, taking a loan seems like a cakewalk. However, things are not as easy as they first appear. You might have a large income from your job or business, but that alone does not guarantee that you will get a loan right away at the interest rate you desire.

To understand how the loan system works for you as the customer, it is important to first understand a concept known as ‘credit score’. This is a number derived from one’s personal credit history: the type of past credit, payment history, new credit taken, credit repaid and length of credit. These collectively determine one’s credit score, which is the single most important factor that banks and financial institutions use to determine if the applicant is a suitable candidate for mortgage loans, credit cards or personal loans.

Not just credit worthiness, the credit score can also help the lending institution determine whether the application for a mortgage loan, for example, should be approved or not. If it is approved, the lender will also deliberate on the rate of interest to be charged on that loan.

Those with a low credit score often find it difficult to get approvals for loans, and may also have to pay a higher rate of interest on the same. The key point to remember is that the credit score is considered before the credit is extended. Hence, it is a prudent move to build a better score before approaching a lender for a mortgage loan.

How to build a good credit score:

* First time applicants may not have a past loan history, but the lender will consider such factors as whether the applicant has any owned property that he or she can use as collateral.

* Those with previous loans can build a good credit score by repaying the loan faster than the loan term period. This can be done by repaying larger amounts (exceeding the EMI amount) periodically.

* Not defaulting or missing payments is key. Lenders study the pattern of defaults closely, and compare the same with financial statements of the same period. The score will be automatically lowered if the lender observes sufficient income but payment defaults, or large borrowings from private sources at the same time that the loan is active.

* Repaying credit card bills on time is crucial. Lenders study how many credit cards the applicant has, what is the repayment pattern like, how much monthly spending takes place on each, etc.

* Another key area of scrutiny is whether the applicant is embroiled in any cheating and/or forgery cases, or whether there are bankruptcies or foreclosures against the applicant’s name.

* Even such payment records as utility bill payment records are closely monitored.

The “Top Down” and “Bottom Up” Approach to Investing in Equities

A Price Waterhouse Coopers report, published right after the General Elections of 2014, predicted that the private equities market would revive and contribute significantly in the building up of India’s success story over the next couple of decades. If you have already contributed to the success story by investing in the best equity funds in India, it is definitely time to sharpen your analysis of the investment markets to make the right calls. So, should you adopt a “top down” or a “bottom up” approach for evaluating your equity instruments? Here are some insights.

What the “Top Down “Approach Means

“Top down” investing is about looking at the holistic picture or the “big picture”. Here, the investors take a close look at the economy first, and try and forecast which industry would be generating the best and the maximum returns and why. Once the winners or the prospective winners have been identified, investors hunt for specific companies within these sectors and the stocks are then added to the portfolios in equity funds. So, if you think that there would be a drop in home loan interest rates, you may also predict that the residential real estate markets would do well as a result of this drop. And, the search can then be limited to the topmost players in this sector and one or few can be chosen for asset allocation.

What the “Bottom Up” Approach Signifies

This approach is the reverse of the one above. It overlooks the economic conditions and the broad sector, and focuses on the stocks depending upon the specific attributes of the company. So here, the fund manager would be seeking robust companies with healthy prospects, irrespective of the macroeconomic factors or the industry it is a part of. However, what qualifies as a good prospect is purely a matter of opinion. While some would find earnings growth as effective pointers, others will prefer companies with low P/E ratios attractive. The health of the company is all that matters here, irrespective of the financial conditions of the market.

The Ideal Approach

When it comes to equity mutual funds, the best ones to opt for are a combination of both approaches in order to ensure maximum performance. Skilled fund managers are those who have built trust over the years with well performing funds. An equity scheme worthy of investment should be one that does not resort to any biases when choosing the companies to invest in.

When is it the Right Age to go in for a Second Home?

Are you in the market for a second home by taking a loan against your first home? We analyse your prospects, basis how old you should be to do this.

It is a dream come true for many people to buy their first home. Given the costly real estate market all over the country, buying one’s own home is a major milestone reached, indeed. Most people resort to taking a home loan for their house purchase, which they then repay through EMIs.

But a few years down the line, as the owner of a house, you might feel the need to purchase a second home. Your reasons for this purchase could be many: You wish to have a weekend home away from your current residence, you wish to invest in more property, you wish to buy property so that you can lease it out or sell it when its value appreciates, and so on. If you do not have the necessary funds for the purchase, you decide to take a loan against your first property.

Though this decision makes sense on many levels, it is also fraught with risk. Consider these factors:

• Can you afford to pay for a second home? This question is pertinent especially if you have an unpaid loan on the first house. You might have to juggle two EMIs.
• Do you have a stable source of income? If your job is stable and you are at a stage where you are likely to be promoted into upper management with a corresponding salary increase, you might consider taking the plunge and buying a second home. But if you are in your 20s, working on a middle management job and paying EMIs for a home and vehicle, and also juggling the demands of a growing family, you should postpone your decision by a few years.
• Why do you need a second home? Whether you are planning to live there for certain days of the year, or whether you lease it out, you will still have tax liabilities and maintenance expenses on it. If you are still in the ‘growth phase’ of your career, you might reconsider the decision to strain yourself further with a second home purchase.
• Have you calculated how much loan against property you will get? If you decide to take a loan for the second home, most banks and financial institutions do not give more than 70% of the second home’s value in lieu of a loan. The loan terms are not identical for both loans, and interest rates are normally higher for second home loans.

Thus, it is advisable to take a loan against property only when the first home loan is completely repaid. Taking a top-up loan on the same property when the first loan is still unpaid will result in more EMIs for you. Also, top up loans are given for a figure not exceeding that of the first property loan, so if your second home is an expensive purchase, you will need to arrange for more upfront funds to complete the transaction.

To come back to the question of when it is advisable to take a loan against property for a second home, the answer is: At least 10 to 15 years after the first home purchase. In this time, serious borrowers are more likely to have repaid the home loan in entirety. Also, the intervening period sees an increase in income (though with a corresponding increase in property prices), so one’s loan eligibility is also higher. Besides, since you pledge your first home as collateral, the lending institution is more likely to approve your loan request.

ULIPs are smart investments for the future

One of the best investment options currently is the ULIP. We examine how it works and what makes it such a great choice.

An investor looks to create wealth by making investments. However, the chosen investment instrument must be the right one: there are several types of investments to choose from, but which of them is the best investment option in India?

While every investment instrument has its merits and demerits, there are some that provide high returns at low to moderate risk to the investor. Many investors are averse to playing very high stakes on the stock market to get gains. In this context, it is pertinent to note a very good investment known as the Unit Linked Insurance Plan (ULIP), one of the best investment plans offering a mix of insurance as well as income for the future.

What is a ULIP?

As mentioned earlier, a ULIP offers the dual benefit of insurance for you and your loved ones with investment and returns thrown in. It is essentially an insurance policy that the holder pays premiums for. However, unlike other insurance policies, the premiums in a ULIP are divested in two parts.

One part goes towards paying the premium for the insurance, while the other is invested in good quality, high performing equity shares. Normally, a fund manager handles this particular aspect of investment by keeping close tabs on market trends. The fund manager manages the entire equity portfolio while taking a yearly fee for doing so, apart from a commission from income. No investments are made without informing the investor and taking approval.

Once the investment is made, the insurance company allots specific ‘units’ of shares to the policy holder. This allotment is subject to how much money is invested in the equity shares. The fund manager examines the unit value closely. The unit value changes as per changes in market trends, and the potential for income stems from these changes. An experienced fund manager will keep tabs on earnings basis the market values per business day.

There is a lock-in period of three years for the ULIP. However, the investor has the freedom to assess the shares invested in and also choose to change the chosen securities in favour of better ones. This is important, because the investor has full control over how much he can earn from the securities in his portfolio. Besides, the ULIP investment is a long term one, thus giving investors the chance to study the folio performance and make corrections when needed.

The maturity of the ULIP provides a large corpus of money that can be used for a variety of personal or professional needs. Some investors choose to re-invest a portion of the money earned in other investment options in India.

Additionally, the sum assured under ULIPs is tax deductible under Sec 80C of the Income Tax Act, 1961.