Last updated 12 Nov 2026
A loan against shares lets you borrow money by pledging shares, bonds or mutual fund units that you already own, instead of selling them. The lender lends only part of their market value. You keep the investments, and usually any dividends, as long as you repay on time and the value stays above the lender's limit. It suits people who need money for a short or medium period and do not want to exit a long-term holding.
This guide explains the mechanics step by step, the risks that catch borrowers out, and what to ask before you sign. Read it with Loan against shares: rules to know, which covers who may lend and the safeguards that apply.
How a loan against shares works
The security is your investment portfolio. Your holdings stay in your own demat account, but the lender marks a lien or pledge on the securities it accepts. The lender then sets a loan limit based on what those securities are worth. You can usually draw part of the limit, and in many structures you pay interest only on the amount actually used.
- You apply and complete KYC. The lender shares its list of approved securities and the value it will lend against each.
- You create the pledge in your demat account with an instruction you authorise yourself, so the lender holds a lien on specific securities.
- The lender sets a limit, called drawing power: the market value of the pledged securities reduced by a margin the lender keeps for itself.
- Money is paid into your own bank account. You repay interest, and the principal as the agreement says, and the lender then releases the pledge.
The lender does not become the owner of the shares. If you repay in full, the pledge is released and the holdings return to normal use. If you do not repay, the lender can sell enough of the pledged securities, after following the agreement and the rules, to recover what is owed.
What can usually be pledged
Typical security and how lenders treat it
| Security | How lenders usually treat it | What to ask |
|---|---|---|
| Listed equity shares | Accepted if on the lender's approved list; more volatile shares attract a larger margin or are refused | Is every share I hold on the approved list, and at what lending value? |
| Equity mutual fund units | Often accepted; the lien is marked through the fund's registrar | How is the unit value fixed each day? |
| Debt mutual funds and bonds | Often a lower margin than equity because prices move less; some lenders refuse them | Which categories do you accept? |
| Shares of unlisted or thinly traded companies | Usually refused because they cannot be sold quickly | Not applicable in most cases |
| Shares in physical form | Many lenders ask you to convert to demat first | Can I convert before applying? |
The approved list and the lending value for each security are the lender's own choices within the limits set by regulation. Two lenders can value the same portfolio differently.
Drawing power, margin and the margin call
Drawing power is the maximum you can use at any time. It is worked out from the current market value of your pledged securities, so it moves every day. If prices fall and your drawing power drops below what you owe, the lender will ask you to restore the cover. This request is called a margin call.
A worked example with round numbers (illustrative, not a lender policy)
| Step | Amount | What it shows |
|---|---|---|
| Market value of pledged shares | ₹10,00,000 | The starting value of the portfolio |
| Lender keeps a margin of half the value | ₹5,00,000 lending value | Drawing power is half the market value in this example |
| You use the full drawing power | ₹5,00,000 owed | Your loan is fully drawn |
| Prices fall by one fifth | Value ₹8,00,000, drawing power ₹4,00,000 | Drawing power is now below the ₹5,00,000 you owe |
| Shortfall | ₹1,00,000 | You must repay that amount or pledge more securities |
A fall of one fifth cut the portfolio by ₹2,00,000 and your drawing power by ₹1,00,000, which left you ₹1,00,000 short. If you cannot meet the call within the time in your agreement, the lender may sell pledged shares. A forced sale usually happens when prices are low, which is the worst moment to sell.
The easy way to avoid this is to borrow well under your drawing power, not up to it. Keep a cushion, and keep cash or extra securities you could add quickly.
Loan structures: overdraft and term loan
Two common structures
| Feature | Overdraft (credit line) | Term loan |
|---|---|---|
| How you draw | Withdraw and repay as you need, within the limit | One lump sum at the start |
| Interest | On the amount used, for the days used | On the full amount for the whole period |
| Repayment | Interest monthly; principal any time before the limit review | Fixed EMI or one payment at the end, as agreed |
| Suits | Variable or uncertain cash needs | A known one-time need |
| Renewal | Limit is reviewed and renewed on a set date, often yearly | Ends when repaid |
Ask which structure the lender offers, because it changes how much interest you pay. The EMI calculator shows the cost of a term loan; for an overdraft, the cost depends on how long you use each amount.
Who it suits and who it does not
- It suits you if you hold a diversified portfolio, need money for a defined period, and have another source to repay, such as salary or business income.
- It suits you less if the only way to repay is to sell the same shares later; a market fall then hurts twice.
- It is a poor choice if you plan to use the money to buy more shares. A fall in prices cuts both your investment and your cover.
- It may not suit you if your holdings sit in a few volatile shares, because lenders will lend little against them and ask for large margins.
Costs to understand
Every charge below is set by the lender, and the Key Fact Statement must show them in rupees along with the APR. Compare offers on the APR, not on the headline rate alone. See Key Fact Statement and APR.
- Interest, which may be on the used amount only (overdraft) or the full amount (term loan).
- Processing fee, taken on sanction and usually a percentage of the limit.
- Pledge and release charges, and any charge by the depository for creating or removing a pledge.
- Annual renewal or limit-review fee on overdraft limits.
- Penal charges for late payment. Ask how they are worked out and on what amount.
- Charges for converting physical shares to demat or for valuation, where they apply.
For current indicative rates, see the interest rates page. Rates differ by lender and by your profile, and a floating rate can change while the loan runs.
Risks to weigh before you pledge
Risk and how to manage it
| Risk | What happens | How to reduce it |
|---|---|---|
| Market fall | Drawing power drops and you get a margin call | Borrow far below the limit; keep spare cash or securities |
| Forced sale | Lender sells pledged shares at the prevailing price | Check your cover each week; respond to calls the same day |
| Corporate actions | Bonus shares, splits or rights issues need handling while pledged | Ask how the lender treats corporate actions |
| Concentration | A fall in one share cuts the cover sharply | Pledge a spread of holdings, and borrow less |
| Loss of a long-term position | A sale ends a holding you meant to keep for years | Keep the loan small and short |
How to compare offers
- Ask the lender for the list of approved securities and the lending value for each, in writing.
- Find out whether interest runs on the used amount or the full amount.
- Ask what the margin-call notice period is and how the lender will contact you.
- Ask about renewal charges and what happens at the review date.
- Compare offers on the APR in the Key Fact Statement.
- Check that the money is paid into your own bank account, as the lender must do.
LOANZ 360 is a loan aggregator, not a lender. Where a partner lender offers this product, your details are compared with its published eligibility criteria before any application goes to it. This helps avoid unnecessary credit enquiries; too many lender checks in a short time can lower your score.
Frequently asked questions
Do I lose my shares if I take a loan against them?
No. The shares stay in your demat account with a lien in the lender's favour. You can usually still receive dividends. You lose them only if you fail to repay or fail to meet a margin call and the lender sells them under the agreement.
How much can I borrow against my shares?
It depends on the market value of the securities the lender accepts, minus the margin it keeps. Lenders also have an overall cap. Ask for the lending value of each holding in writing before you pledge anything.
Does a loan against shares affect my credit score?
Like any loan, the lender reports it to the credit bureaus, and your repayments are recorded. Paying on time helps your credit history; missed payments hurt it. Applying to many lenders in a short time can also lower your score, so compare before you apply.
What is a margin call?
It is a request from the lender to bring your cover back to the required level, either by repaying part of the loan or by pledging more securities, after a fall in prices. If you do not act in time, the lender may sell pledged shares.
Is the interest on a loan against shares tax deductible?
It depends on what you use the money for and on your tax regime. Tax rules were renumbered under the Income-tax Act, 2025. Check with the Income Tax Department or a tax adviser for your case.
Can I pledge shares held jointly?
Often only if all holders agree and the lender accepts joint holdings. Ask the lender how it treats a first holder, second holder and joint holder when creating the pledge.
What happens at the review date of an overdraft limit?
The lender reviews your portfolio and may renew, reduce or close the limit. Ask what it needs from you and whether a review fee applies.
Related reading: Loan against shares: rules to know, Key Fact Statement and APR, Loan eligibility and FOIR, Credit score and credit report, Loan settlement vs loan closure, Borrower rights and how to raise a complaint, Overdraft, LTV, Interest rates, EMI calculator.