In times of financial need, many investors consider redeeming their mutual fund investments or selling equity shares. While this provides instant cash, it can negatively impact long-term wealth creation. A smarter and more efficient solution is opting for a Loan Against Securities or Loan Against Shares. These options allow you to access liquidity without breaking your investment discipline.
This article explains why borrowing against your investments is a better financial decision than liquidation.
What Is a Loan Against Securities?
A Loan Against Securities is a secured loan where you pledge your financial assets—such as mutual funds, equity shares, bonds, or ETFs—as collateral to receive funds from a lender. Similarly, a Loan Against Shares specifically uses equity shares as security to raise short-term or medium-term funds.
The ownership of your investments remains with you while the lender holds a lien until the loan is repaid.
Continue Wealth Creation Without Selling Investments
One of the biggest advantages of a Loan Against Securities is that your investments remain invested in the market. Equity and mutual funds are designed for long-term growth, and selling them prematurely can disrupt compounding.
With a Loan Against Shares, your portfolio continues to benefit from potential market appreciation, dividends, and long-term returns, ensuring your financial goals stay intact.
Save Capital Gains Tax
Selling mutual funds or shares triggers capital gains tax, which directly reduces your overall returns. Short-term capital gains tax can be particularly high.
A Loan Against Securities does not involve redemption, so no capital gains tax is applicable. Similarly, a Loan Against Shares helps you meet liquidity needs without creating any tax liability, making it a tax-efficient financing option.
Lower Interest Rates Than Unsecured Loans
Since the loan is backed by investments, lenders offer competitive interest rates compared to personal loans or credit cards.
A Loan Against Securities typically comes with lower interest costs and flexible pricing. A Loan Against Shares also benefits from reduced risk for lenders, resulting in better borrowing terms for investors.
Quick Approval and Instant Liquidity
Market volatility or emotional hesitation can delay selling investments. In contrast, a Loan Against Securities provides fast approval, often within 24 to 48 hours.
Many financial institutions offer digital processing for Loan Against Shares, making it a convenient option during emergencies or urgent cash requirements.
Flexible Repayment and Overdraft Facility
A major benefit of a Loan Against Securities is flexible repayment. Investors can choose to pay only interest during the tenure and repay the principal later.
A Loan Against Shares often comes with an overdraft facility, where interest is charged only on the amount utilized. This helps in better cash-flow management and interest savings.
Ideal for Short-Term Financial Needs
For temporary requirements such as business funding, education expenses, or medical emergencies, selling long-term investments is not advisable.
A Loan Against Securities acts as a bridge between short-term needs and long-term wealth creation. Similarly, a Loan Against Shares ensures you don’t miss out on future market recovery or growth.
Conclusion: Smart Borrowing Without Breaking Investments
Redeeming mutual funds or selling shares should be the last resort for raising funds. A Loan Against Securities or Loan Against Shares provides liquidity, tax efficiency, lower interest rates, and flexibility—without compromising your long-term financial plan.
For investors focused on disciplined wealth creation, borrowing against investments is not just convenient—it is a strategic and financially sound decision.