Loan Against Shares vs Loan Against Bonds: key Differences & Benefits Explained

When in need of quick funds, many people take loans. However, few people know that they can also get funds by leveraging their investments. Shares and bonds can be used to secure high-value loans with ease, giving access to money during financial emergencies, without selling assets. But when choosing between Loan Against Shares and Loan Against Bonds, which option is better for you?

Read this blog post to explore the key differences between these two loan types and thus make an informed financial decision.

Loan Against Shares

A Loan Against Shares is a smart way to use shares as collateral for a loan. This way, you are ensured that you get instant funds in emergencies without losing ownership of your

shares and also earn dividends from them. Remember, the loan amount you are eligible for is determined by the value of the shares you’re pledging and the shares pledged should be from the Bank’s approved list.

Benefits of Loan Against Shares

A Loan Against Shares lets you access funds without selling your shares, ensuring liquidity while retaining ownership. You can avail loans up to 50% of the value of the pledged shares, with a maximum limit of ₹ 20 lakh. This loan offers quick disbursement, minimal documentation and flexible repayment options.

• OD Facility

This loan comes with an overdraft facility for one year on a renewable basis. It provides financial flexibility, allowing you to withdraw funds as needed while paying interest only on the utilised amount.

• No Need to Sell Your Investments

The best part about taking this loan is that you can access cash without selling your investments outright. Your shares keep earning returns for you. So, even if you have a loan against them, you can still receive dividends and potentially see an increase in the value of the shares.

•  Fast and Simple Processing

Availing a loan against your shares is fast and easy because the loan process comes with minimal documentation. After you submit your application and your shares are evaluated for their worthiness as collateral, the loan disbursement process starts immediately.

• Preserving Long-Term Financial Goals

When you decide to pledge your shares, you are keeping your ownership of the shares intact to let your investment portfolio grow over time.

Loan Against Bonds

Loan Against Bonds is another way to get instant funds by pledging your bonds as loan collateral. Since bonds provide stable returns and are less volatile, lenders offer higher loan-to-value (LTV) ratios and lower interest rates on these loans. You can consider this type of loan if you need liquidity and own high-value bonds. Remember, bonds must be marketable and from the Bank’s approved list.

Benefits of Loan Against Bonds

A Loan Against Bonds provides access to funds while allowing you to retain ownership of your bonds. There is no upper limit on the amount that can be availed through a Loan Against Bonds with ICICI Bank. However, it is subject to approval.

1. Loan-to-Value (LTV) Ratio

The loan amount is based on the bond’s market value, often offering a higher loan-to-value (LTV) ratio than shares. Since bonds are more stable and provide assured returns, they are considered a safer option for lenders.

2. OD Facility

This type of loan offers a renewable one-year overdraft facility, giving you financial flexibility. You can withdraw funds as needed and pay interest only on the amount utilised, making it a cost-effective borrowing option.

3. No Need to Sell Investments

With a Loan Against Bonds, investors can access funds without liquidating their bonds. This means they continue earning interest on their bonds while using the borrowed amount for other financial needs.

4. Quick and Easy Processing

Loan approval for bonds is faster compared to other secured loans, as lenders can easily verify the bond’s value and credibility. For bonds from government-backed institutions or high-rated corporations, approval is even quicker.

Comparing Loan Against Shares and Loan Against Bonds

Here are the key differences between Loan Against Shares and Loan Against Bonds from ICICI Bank.

Conclusion

Loan Against Shares and Loan Against Bonds are smart ways to get fast funds, but it can be tough to choose the right option between the two. However, now that you know the benefits of both types of loans, it can be easier to decide which one suits your financial needs. Take time to do research and compare loan options before choosing the loan option that aligns with your financial situation.

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