Why taking loan against securities makes sense during rising stock markets
Since the stock market is volatile, you should never be in a hurry to sell your stocks. It’s a game of patience. A bit of haste in selling your shares may lead to an undesirable loss. Apart from this, it might halt your long-term financial goals.
If you want the best value for your existing stocks, you have to wait and stick to your plans. But unfortunately, not all investors are patient enough to wait for as long as it takes to maximize their investments. Unexpected fund shortfalls may compel many to liquidate their shares early on.
Selling your securities in need of urgent cash may seem convenient, but it can result in a loss of potential gains you might obtain in the long term. Even if the value of your stocks is higher than expected, taking a loan against shares is wiser than selling them off.
A loan against stocks will help you raise quick funds in the interim to tackle unexpected crises and preserve your securities for future growth. You can leverage your existing investments to meet your urgent fund requirements. Below is why a loan against securities makes sense during rising stock markets.
Retain fund growth
No matter what the value of your equity shares is today, they will increase with the rise in the stock market. One of the many reasons why taking a loan against securities makes sense is that it keeps your stocks ownership intact, meaning that the value of your investment continues to grow as the market rises even after pledging them.
So, with a loan against shares or stocks, you can meet your short-term fund shortfalls without liquidating your assets and jeopardizing your long-term financial goals. This feature makes this loan facility a prudent choice for long-term investors.
Periodic evaluation of the securities pledged
Since market-linked securities witnesse sanctioned credit limit due to steep market corrections, the borrower has to pledge either more securities or pay the difference amount in cash/check. Failure to do so may lead to price volatility, lenders periodically re-evaluate the pledged securities. They may also conduct interim revaluation during the market correction. If the total drawn amount exceeds tho a penal interest of as high as 18% a year on the amount drawn more than the sanctioned limit.
If you take a loan against shares during the rising stock market, the LTV ratio calculated will be higher, and you will get a higher amount on your pledged securities. Also, with the rise in the market during the loan tenure, you will be able to draw more cash without submitting more securities.
Flexible loan amounts
Generally, with other loan options, borrowers get a loan amount based on their credit score. A loan against stocks sets no such restrictions if you choose the right lender, such as Abhi Loans. What matters in this loan facility is the type and value of securities pledged. The higher the worth is, the more the amount you will get. That means if the market is on the rise, the value of your shares will be high and give you a higher loan amount.
While many banks/NBFCs check the borrower’s credit history before sanctioning the loan, others do not. Abhi Loans, a non-deposit NBFC, is where you need not show your credit score to take a loan against securities. Here, you get quick capital against your securities ranging from Rs. 15,000 to Rs. 1,00,00,000.
Wrap up
A loan against securities benefits you in more than one way if the market is on the rise. And if you choose to take the loan from Abhi Loans, you can unlock flexible loan amounts against your stock market investments without credit score and retain your fund growth.