Loans Against Shares (LAS) | Peacock Wealth Management

Understanding LAS

Your Portfolio as Collateral — Not Cash Out

A Loan Against Shares (LAS) — also called a pledging facility or non-disposal undertaking loan — is a secured credit facility where your listed equity shares, mutual fund units, or ETFs are pledged as collateral to a bank or NBFC in exchange for an overdraft facility. Your portfolio remains invested and continues to appreciate — you only lose the collateral if you default on the loan.

The key distinction from selling: when you sell shares to raise cash, you lose all future upside and incur capital gains tax. With LAS, your shares stay in your Demat account (pledged, not transferred) — you continue to receive dividends, bonus shares, and rights issues — while accessing the liquidity you need.

At Peacock Wealth Management, we advise on LAS structuring — helping clients determine how much to borrow, which securities to pledge, how to use the facility responsibly, and when it is genuinely beneficial vs. when it creates unacceptable risk. This is a powerful tool that requires disciplined use.

Indicative LTV (Loan-to-Value) by Security Type

Security Type

Typical LTV

ARN Limit

Large Cap Listed Shares (Nifty 50)70–80%50% (ARN)

Mid Cap / Nifty 500 Shares60–70%50% (ARN)

Small Cap / Other Listed Shares40–55%50% (ARN)

Equity Mutual Fund Units60–75%50% (ARN)

Debt Mutual Fund Units75–80%Per lender

ETFs (Nifty / Sensex ETFs)70–80%50% (ARN)

Sovereign Gold Bonds65–75%Per lender

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Portfolio Stays Invested — Upside Preserved

Unlike selling shares, pledging keeps your portfolio intact. You continue to benefit from capital appreciation, dividends, bonus shares, and rights issues on pledged securities throughout the loan tenure.

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No Capital Gains Tax Triggered

Selling shares creates a taxable event — STCG or LTCG depending on holding period. Pledging shares for a loan is NOT a sale — no capital gains tax is triggered. Particularly valuable for large long-held positions with significant embedded gains.

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Overdraft Structure — Pay Only for What You Use

LAS is typically structured as an overdraft facility — you are sanctioned a limit (say ₹50L) but pay interest only on the amount actually drawn at any given time. Repay early to reduce interest cost, draw again when needed — maximum flexibility.

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Speed — Funds in 24–48 Hours

LAS disbursals are among the fastest in the lending ecosystem. Once the pledge is created digitally in CDSL/NSDL (typically same day), most lenders disburse the overdraft limit within 24 hours — significantly faster than property loans or personal loans.

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Lower Interest Rate Than Unsecured Loans

Being a secured facility, LAS interest rates (typically 9–12% p.a.) are significantly lower than personal loans (12–24%), business loans (12–18%), or credit card balances (36–42%). The collateral quality determines the rate.

Ideal Use Cases

When LAS Makes Perfect Sense

LAS is not for every situation — but when used intelligently for the right purpose, it is one of the most powerful liquidity tools in a wealth portfolio.

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Bridge Loan for Property

Bridging the gap between a property purchase and the proceeds from a property sale — or funding a down payment before a home loan is disbursed. Short-term capital requirement with a clear repayment event.

Example: Portfolio ₹2 Cr. Need ₹60L down payment immediately. LAS at 50% LTV sanctions ₹1 Cr limit. Draw ₹60L, repay in 3 months when home loan disburses. Interest cost: ~₹1.5L. Alternative: sell ₹60L of shares = ₹9–12L+ LTCG tax triggered.

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Business Opportunity Capital

When an immediate business opportunity arises requiring capital — a trade deal, inventory purchase, business acquisition, or working capital gap — and selling long-term equity positions would be sub-optimal.

Example: Business owner with ₹1.5 Cr portfolio needs ₹40L working capital for 6 months. LAS overdraft at 10% p.a. costs ₹2L interest. Far cheaper and faster than an unsecured business loan at 16–18%.

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Market Opportunity Capture

When equity markets correct sharply and you identify a strong buying opportunity — but are fully invested. LAS allows you to borrow against existing holdings to buy more at corrected prices. Requires disciplined risk management.

Example: Market corrects 25%. Investor has ₹80L portfolio (down from ₹1 Cr). Sees strong value. Uses LAS at 50% = ₹40L limit. Draws ₹20L to add selective quality positions. As market recovers, repays loan from portfolio gains.

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Education or Major Expense Funding

Funding a child's higher education, a wedding, or other major life event without disrupting a long-term investment portfolio that may be approaching a critical compounding phase.

Example: ₹50L needed for daughter's foreign university fees. Selling mutual funds at this time triggers slab-rate tax on gains. LAS at 9.5% costs ₹4.75L annual interest vs ₹7–10L+ tax on gains from selling.

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Asset Rebalancing Without Tax

Rebalancing a portfolio — adding to a new position while maintaining an existing winning position — using LAS as a temporary bridge while the new position builds up and is funded from ongoing income or future cash flows.

Example: Investor wants to add ₹30L to a new sector fund but doesn't want to sell existing 5-year equity position. Uses LAS overdraft for 8 months while monthly SIP builds toward repaying the drawn amount.

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Emergency Liquidity Backstop

Setting up a pre-approved LAS facility as a low-cost emergency backup — even without drawing it. An available ₹25–50L overdraft limit at 10% provides peace of mind: you can access funds in 24 hours without disrupting your portfolio.

Example: HNI investor sets up ₹50L LAS facility on ₹1 Cr portfolio. Pays zero interest unless drawn. Acts as a financial safety net — far superior to keeping ₹50L in a savings account earning 3.5%.

The LAS Process

From Application to Funds in Account

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Our Role

Portfolio Assessment

We assess your portfolio — identifying eligible securities, calculating available LTV, recommending optimal pledge basket, and selecting the best lender for your profile

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Bank Process

Application & KYC

Lender KYC and credit assessment. Minimal documentation — your securities are the collateral. No income proof required for most LAS facilities

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Pledge Creation

Digital Pledge via Demat

Pledge created digitally in CDSL/NSDL — shares move to pledge status in your Demat account. You retain beneficial ownership; lender gets pledge marker. Takes 1–2 hours

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Sanction

Overdraft Sanctioned

Lender sanctions overdraft limit based on approved LTV of pledged securities. Limit may be 50–80% of market value depending on security category

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Drawdown

Draw When Needed

Transfer funds to your account as needed. Pay interest only on amount drawn. Repay any time to reduce interest cost. Redraw as required within the sanctioned limit

LAS vs Alternatives

LAS vs Other Ways to Raise Liquidity

Feature

LAS ⭐

Sell Shares

Personal Loan

Home Equity

Portfolio Impact Effect on investments

Stays invested

Portfolio reduced

No impact

Capital Gains Tax Triggered on use?

None

Yes — STCG/LTCG

None

Interest Rate Annual cost

9–12% p.a.

N/A (No loan)

12–24% p.a.

8–10% p.a.

Speed of Access Time to funds

24–48 Hours

T+1 Settlement

5–7 Days

30–60 Days

Documentation Complexity

Minimal

None

Moderate

Extensive

Dividends / Returns Continue to accrue?

Yes ✓

No — sold

Yes

Flexibility Repay & redraw?

Yes (Overdraft)

N/A

EMI-based

Margin Call Risk Portfolio falls?

Yes — if LTV breached

None

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The Peacock Perspective: LAS wins on speed, cost, tax efficiency, and portfolio continuity — but carries margin call risk that selling shares does not. It is most powerful for short-term, well-defined capital needs where there is a clear repayment event (property proceeds, bonus, business income) within 6–24 months. It becomes risky when used to fund consumption without a repayment plan, or when the pledged portfolio is highly volatile and concentrated in few stocks.

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Key Risks to Understand

Margin Call / Margin Shortfall

If the market value of pledged securities falls and the outstanding loan exceeds the permitted LTV, the lender issues a margin call — you must either repay part of the loan or pledge additional securities within the stipulated time. Failure to meet a margin call results in the lender selling your pledged securities.

Forced Selling in Market Downturns

In a sharp market correction, pledged securities lose value — potentially triggering margin calls precisely when markets are worst. This can force sale of shares at depressed prices — the worst possible time. Never pledge more than 50% of your equity portfolio for this reason.

Interest Cost vs. Opportunity Cost

LAS at 10–12% p.a. is only beneficial if the purpose justifies the interest cost. Borrowing at 11% to invest in assets yielding less destroys value. Always calculate post-tax cost of borrowing vs. the return on the use of funds before proceeding.

Dividend / Corporate Action Restrictions

While you technically retain beneficial ownership, some lenders place restrictions on corporate action participation on pledged securities. Check specifically whether dividends, bonus shares, and rights entitlements continue to flow to you during the pledge period with your lender.

Concentration Risk Amplification

Pledging concentrated single-stock positions amplifies risk dramatically — a single stock can fall 40–60% rapidly. LAS on concentrated portfolios (1–2 stocks) is high-risk. Diversified portfolios (10+ stocks or mutual funds) are far safer for pledging purposes.

Misuse for Consumption Spending

The most common LAS mistake: using it to fund lifestyle expenses without a clear repayment plan. If you borrow against your portfolio for consumption and cannot repay, you risk losing the portfolio in a downturn. LAS must always have a defined, credible repayment source.

Our LAS Advisory

Structured LAS — Not Just a Facility

We don't just connect you with a lender. We assess suitability, size the facility appropriately, and monitor ongoing risk — ensuring LAS serves your goals without endangering your portfolio.

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Portfolio Eligibility Assessment

We assess your portfolio's LAS eligibility — identifying which securities qualify, calculating available LTV, flagging concentration risks, and recommending the optimal pledge basket to minimise margin call risk while maximising available credit.

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Purpose & Sizing Advisory

We advise on whether LAS is genuinely the right tool for your purpose, the appropriate loan quantum (never pledge more than 40–50% of portfolio value), the optimal repayment timeline, and the post-tax cost of borrowing vs. available alternatives.

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Lender Identification & Structuring

We identify and compare LAS offerings from major banks and NBFCs — evaluating interest rates, LTV ratios, margin call triggers, pledge documentation processes, and lender flexibility — matching you with the best facility for your securities and purpose.

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Ongoing Margin Monitoring

After disbursement, we monitor your portfolio value against the outstanding loan — alerting you proactively when the LTV approaches the margin call threshold, giving you time to either repay partially or pledge additional securities before a forced sale occurs.

Common Questions

Frequently Asked Questions

What is the difference between LAS (Loan Against Shares) and MTF (Margin Trade Funding)?+

These are distinct products. LAS — you pledge your existing securities (that you already own) as collateral to raise cash for any purpose (personal, business, etc.). The shares you pledge were already yours. MTF (Margin Trade Funding) — a facility offered by stock brokers where you use borrowed money to buy additional shares, using a combination of your existing shares and the newly bought shares as collateral. MTF is specifically for leveraged trading/investing; LAS is for general liquidity needs. LAS interest rates are typically lower than MTF, and LAS has more flexible use of funds. Our MTF Calculator can help you understand MTF costs.

Do I continue to receive dividends on shares pledged under LAS?+

In most LAS structures offered by banks and NBFCs in India, dividends, bonus shares, and rights entitlements continue to flow directly to the original beneficial owner (you) — because the pledge is only a lien on the shares, not a transfer of ownership. However, this depends on the specific lender's terms. We review the pledge agreement carefully to confirm this before recommending any lender. Stock broker MTF may have different terms regarding corporate action entitlements — always check the specific loan agreement.

What happens when there is a margin call?+

A margin call occurs when your pledged portfolio's value falls below a certain threshold relative to your outstanding loan. The lender will notify you and give a stipulated time (typically 1–5 business days) to restore the margin by: (1) repaying a portion of the loan; or (2) pledging additional eligible securities. If you do not restore the margin within the specified time, the lender has the right to sell the pledged securities to recover the outstanding loan amount. Our ongoing monitoring service provides early alerts — typically when your LTV reaches 80–85% of the trigger level — giving you advance warning and time to act before a formal margin call is issued.

Can I pledge mutual fund units for LAS?+

Yes — most lenders accept mutual fund units as collateral for LAS, subject to category eligibility and lender-specific approved fund lists. Equity mutual funds: typically 50–70% LTV. Debt mutual funds: 75–80% LTV. ELSS funds: generally not accepted as collateral during the lock-in period. Liquid funds: 90%+ LTV at some lenders. The pledge on mutual fund units is created through a letter of pledge and lien marking at the registrar and transfer agent (CAMS/KFintech) — a different process from equity share pledging through Demat. We guide you through the specific documentation for mutual fund pledging.

How much of my portfolio should I pledge for LAS?+

Our strong recommendation: never pledge more than 40–50% of your total portfolio value as LAS collateral. This buffer protects you from margin calls in a normal market correction (which can easily be 20–30% for equity portfolios). As a practical example, if your portfolio is ₹1 Cr, we recommend limiting the LAS pledge to ₹50L of securities — giving you a ₹25L overdraft at 50% LTV, with ₹50L of un-pledged securities acting as a cushion. For concentrated single-stock portfolios, reduce this further to 25–30%. The maximum facility size available to you is not the right benchmark — your risk tolerance and the purpose of the loan should determine the quantum.

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Important Disclaimer: Loan Against Shares involves significant risk including the risk of forced sale of pledged securities in the event of a margin call. LTV percentages quoted are indicative and vary by lender, security category, and market conditions. Interest rates are indicative and subject to change. Pledging does not constitute a sale — however, you may lose your pledged securities if you fail to meet a margin call. Peacock Wealth Management is a ARN-registered distributor — we advise on LAS structuring and risk management but do not provide loans directly. All loans are through registered banks and NBFCs. This is not an offer of credit. Please assess your repayment capacity carefully before availing LAS.

Unlock Your Portfolio's Potential

Need liquidity? Your portfolio
can provide it — without selling.

We assess your LAS eligibility, size it appropriately, and monitor it throughout — so your portfolio works for you without putting it at risk.

Explore LAS Advisory All Loan Products →

Loans AgainstShares (LAS)

Your Portfolio as Collateral — Not Cash Out

When LAS Makes Perfect Sense

From Application to Funds in Account

LAS vs Other Ways to Raise Liquidity

Key Risks to Understand

Structured LAS — Not Just a Facility

Frequently Asked Questions

Need liquidity? Your portfoliocan provide it — without selling.

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Loans Against
Shares (LAS)

Need liquidity? Your portfolio
can provide it — without selling.