The easy guide to applying for loan against securities

Your LAS application process can be a breeze after understanding the features of the loan.

There comes a time in the growth cycle of every business, when taking a business loan becomes imperative to upgrading the business, acquiring new machinery, or purchasing new commercial premises. At this juncture, a deft solution is to take a loan against shares.

The loan against shares, as the name suggests, is a loan offered to you after you pledge your shares as collateral with a bank or financial institution. This option lets you monetise your owned securities at short notice, so that your business goals remain on track and you don’t have to liquidate your other assets. The only stipulation is the shares you pledge must be your own, and before applying for a loan against shares, find out from the prospective lending institution about their:

1. List of approved securities. Every bank and financial institution has a list of approved securities that they can offer a loan against. It is prudent to ask for this list from your preferred financial institution before you apply for a loan against shares. This will save valuable time for both you and the lender.
2. Rate of interest. The lending institution will offer you the loan against shares at a certain rate of interest. Find out the rate of interest being offered by at least three other comparable lenders before you make your decision. Interestingly, the interest charged on this category of loans is lower than that of personal loans or credit card loans. You are charged interest on the balance loan amount in your overdraft account.
3. Terms of use. Once the loan is approved and disbursed, you have the freedom to withdraw the funds as you wish. You are not required to withdraw the entire loan amount at once. You can use the money in stages as per your requirement. If you apply for loan against shares from a bank, you will be given an ATM card linked to the overdraft account, and you can withdraw money using the ATM card. Also, you can repay the money in equated instalments and incremental sums paid every few months.
4. Special factors. In most cases, the charges for processing the loan application, maintaining the overdraft account, stamp duty and registration of the loan agreement between you and the lender, etc. will be mentioned in a separate schedule of fees.

Personal finance manual: 5 rules to live by

We compile five financial planning rules that will help you amass wealth and keep you safe from future uncertainty.

Most of us wish that there was a manual we could follow that told us exactly how to get rich using the money we make. While you may or may not subscribe to the ideas that many financial experts put forth in books and TV shows, you must agree on one fact: your fiscal health needs a rulebook to live by!

And so, we compile 5 personal finance rules that will help you create wealth for the future:

1. 1 The 10% post tax rule. Rule #1 of your personal finance manual should be ‘Pay yourself first’. This means that you must set aside savings the moment you get paid. Most people do this in reverse – they try to save money from whatever is left of their income at the end of the month. Instead, set aside 10% of your post-tax income per month for a couple of years. When your income increases, you can increase this percentage to 15% for more savings.
2. 2 The 50% only rule. How much of your income should you spend on daily living? As much as you need, or as much as you can afford – or a little of both? The answer is: Spend only about 50% of your income on bills, groceries, travel, occasional recreation, children’s expenses, other household costs, etc. The remaining can be split into savings, children’s education fund and emergency fund.
3. 3 The emergency fund. Emergencies always strike without warning – there are no cautionary bells and whistles to tell you that a disaster is on its way. And so, it is vital that you prepare for any future crisis with an emergency fund that you build along with your savings. Aim to invest at least 5% of your income in this fund every month. You could operate a seldom-used bank account to stow away this money.
4. 4 The loan conundrum. Rare is the person who has not had to borrow a loan to finance a personal or professional need. From buying a home, to investing in your start-up, and from needing money for your child’s education, to paying for your parent’s hip surgery, a loan can finance a variety of needs. If you want money to pay for your own wedding, or book a special holiday or even to buy a new bike, you can simply opt for a personal loan. Do check your personal loan eligibility first!
5. Lifesavers’ special. Life and health insurance have become vital in today’s world of lurking health conditions and rising inflation. Stress, undiagnosed illnesses and high living costs all strain your resources when you fall ill. Your loved ones might also be left floundering if you are not in their midst in the future. So if you are thinking of investments, think of life and health insurance.

Things to Know Before You Opt for a Home Improvement Loan

About 833 million people, accounting for 69% of India's total population, live in rural areas. Out of this, 75% have a monthly income of less than Rs. 5,000. About 51% of them make their living through annual labour and 70 million do not have access to socio-economic benefits.

According to The Times of India, a vast majority of the population still lives in per capita space of equal to or less than 10x10 feet. This space is not just used for living but also for sleeping, cooking, washing and toilet needs. It comes down to 103 sq feet of space per person in the rural areas and 117 sq feet in the urban parts.

Although cities have slightly better facilities, not even a single city provides 24-hour water supply to its citizens and about 400 million people do not have proper toilets. With an estimation that 7 in 10 people living in cities by 2050, this poses a serious threat and home improvement loans are your best option to ensure that you kids grow up in a healthy environment.

Here are a few things you should consider before opting for such loans.

It is for Improvement and Not Addition

A home improvement loan is sanctioned for repair work that needs to be done and not to buy new items like furniture or kitchen equipment. It can be used to fix a leakage in the pipes, paint the walls, etc. In simple words, it is for the purpose of renovation. Therefore, read all the fine print on the application form thoroughly before signing it.

The Amount of Money to be Borrowed

Usually banks in India pay up to 80% of the total cost of renovation. You can calculate the total expenditure using a home improvement loan calculator. It is easier to acquire if you are already a home loan customer of a bank.

Eligibility Criteria

Just like other types of loans, your monthly income, age and credit history decide the amount that a bank will be ready to lend. If you already have a home loan which is 6-12 months old, you can approach the bank for an improvement loan too.

Benefits over Personal Loan

Unfortunately, a majority of the people in India are not aware of this product and thus opt for a personal loan instead. However, unlike a personal loan, an improvement loan allows you to extend the repayment tenure up to 15 years from 7 years, which means you have to pay a lesser amount as EMI.

Interest Rate and Processing Fee

The interest rate for this product is between 9.5% to 11%, while the processing fee can be anywhere between 0.5% to 1% of the loan amount. It varies from lender to lender.

Tax Exemption

Up to Rs. 30,000 is exempt under Section 24b of the Income Tax Act, but limited to home loan exempt of Rs. 2 lakhs.

There are no prepayment charges for this type of loan and you can choose between fixed and floating rates of interest. So, learn about the amount you need and the EMIs you are likely to pay for it using a home improvement loan calculator and make an informed decision to make your house a better place to live in.

10 things to mindfully plan for your retirement phase

Your retirement can be a glorious phase in your career if you plan for it well. We present 10 good investment options for your consideration.

A lack of planning and awareness about the right instruments can be the difference between a stable retirement and an uncertain one. Take a look at the following investment options that will help you plan for your retirement:

1. ULIPs. A Unit Linked Insurance Plan (ULIP) is an excellent insurance instrument to get capital appreciation over investment. It is a long term investment solution that also provides life coverage. You can start investing in a ULIP in your early 30s and keep investing it instead of withdrawing it after a few years, so that you build a large fund of money.
2. PPF. The Public Provident Fund remains one of the most popular investment instruments for Indians today. It provides an interest of 8% on the funds deposited for 15 years, and the minimum deposit is Rs 500 per year. Since it has a lock-in period of seven years, one is compelled to keep depositing in it. After seven years, one may partially withdraw the funds in it for personal use.
3. Annuity plans. This is one of the best instruments to explore for a peaceful retirement. Using the option of Immediate or Deferred Annuity, one may make an investment either one-time or over a period of years respectively. Look for a product with a traditional and non-participative plan that has flexible pay-out options for both you and your loved ones in your absence.
4. Property. Property always appreciates in value, and this feature makes it an attractive investment option. It may be difficult to buy property initially, but there are ways to monetise it almost immediately after purchase, by renting it or reselling at a later date. Property offers good liquidity and many options to make a regular income.
5. Money back insurance policy. This is an insurance product that offers regular income after a certain number of premiums have been paid. The income is provided annually and becomes a valuable second source of revenue in the retirement years. Generally, money back plans offer both survival and maturity benefits.
6. ELSS. An Equity Linked Savings Scheme (ELSS) offers good returns over investment and tax benefits. It is a diversified equity mutual fund that is also known as a tax saving mutual fund.
7. Mutual funds with SIP. A SIP (Systematic Investment Plan) helps you invest in mutual funds in equating instalments, so that you do not need to park a large sum of money in the fund at the outset.
8. Recurring Deposit. This is a way to invest incremental sums of money every month for a certain tenure, so that a large fund may be created at the end of the tenure. On maturity, you get a sizeable corpus with interest payable on the investment.
9. Fixed deposit. A fixed deposit uses a one-time deposit of money for a certain tenure (in months) and gives you returns by paying you interest on the deposit.
10. Life insurance. You can choose a life insurance product that has maturity benefits. The advantages are dual: 1) You get life coverage, and 2) The maturity can be timed to coincide with your retirement, so that you may get a large fund of money for your personal use.

How ULIPs can help you have a happy retirement

Financial experts advise against depending only on private savings and pension plans for a comfortable retirement. It is time to look at ULIPs.

Many people planning their retirement at the current moment have built a large savings fund from their income and/or invested in good pension plans for the future. Both are excellent options and must be pursued by every potential retiree. But the question to ask is: Are these enough?

With living costs rising every day and inflation showing a constant upward trajectory, it is vital to look at investment options that can beat inflation and offer good returns. You may have invested in a bank fixed deposit or must make regular contributions to your PPF account. But when you retire, will the monies from these instruments help you tide over a financial crunch?

It is time to look at Unit Linked Insurance Plans (ULIPs) to create a retirement corpus.

Why invest in ULIPs?

Many would be terrified about investing in equity-linked securities, especially in the context of retirement planning. But the best ULIP plans for retirement are aimed at further lowering the inherent risk while offering excellent returns on investment.

Unit-linked pension plans help you build a large corpus for your retirement. Imagine if you invested a lump sum amount of Rs 50,000 at 14% interest for 30 years. After deducting tax, the returns on the ULIP would amount to about Rs 25 lakh. Processing and other charges are lower on ULIPs than on other equity-linked investments.

Besides, you have the option of switching your ULIP investment to debt markets if you do not wish to invest in equity markets. You can switch back to equity markets if they are performing well. In all, you can switch your fund options up to four times a year. Hence, you are assured of high returns on investment. However, it is better to entrust this task to the fund manager to avoid switching at the 

wrong times in the market cycle.

Even more importantly, the best ULIP plans give you the option of increasing your investment size in the ULIP pension plan. You can do this if you have extra income in the future, or if you have gained returns from another investment that you wish to invest in the ULIP. Hence, you get higher returns by the time you retire.

If you are on the lookout for the best ULIP plan for retirement, we recommend Wealth Max Plan. It is a single premium ULIP that gives the option of future top-ups, plus the freedom to partially withdraw against the ULIP in an emergency. Also, the plan provides tax deductions under Sec 80C and 10(10D) of the Income Tax Act, 1961.

Loan against shares: Which companies are the top performers?

Reputed financial institutions and banks in India have upped the ante on extending loans against securities in India.

As expenses go up every single day and consumers look to create new channels of funding for personal or professional needs, there is a rising trend to seek hitherto unconventional borrowing methods.

This has led to consumers exploring funding through asset backed means. Asset backed loans comprise such instruments as owned gold, shares, equity mutual funds, exchange traded funds (ETFs), bonds, Government securities, etc. Taking loans against securities is fast becoming popular among businesspersons and even private individuals in India. These means are explored when conventional loan methods may not be available or may not be effective. Normally, loans against securities are borrowed for a shorter period of time.

The big guns in the loans against securities universe

Responding to consumers’ growing need to borrow loans against securities, reputed banks and financial institutions in the country have created a range of excellent loan products. While consumers use these loans for their needs, several banks and NBFCs have emerged as key players in this space.

The big players in the loans against securities arena are:

• IDBI Trusteeship
• Aditya Birla Finance Limited
• Axis Bank
• Axis Finance
• IL&FS Trust
• Bajaj Finance
• Citicorp Finance India
• Kotak Mahindra Investments
• Tata Capital Financial Services
• L&T Fincorp

How loan against securities work

You may pledge your securities – shares, gold, bonds, Government securities, et al – the lending institution for a certain tenure. The securities are then valued and the loan amount is issued to about 50% to 70% of the securities’ value. The borrowers’ credit history also plays a factor in the approval of the loan.

In India, the top performers in loans against securities are measured against their cumulative lending per financial quarter. 

10 most popular loan products

Here’s a look at the most popular loans being availed by different segments of the population in India today, to fund both personal and professional pursuits:

1. Home loans. These are the most popular loan products in India. They are loans extended for the purchase of new or resale property. They are secured loans with a lower rate of interest than other products such as personal loans.
2. SME loans. These are loans extended to businesses in the MSME sector so that they can scale up operations and achieve their goals. The loan amount can be used to buy new machinery, bid for a prominent contract or even purchase new property.
3. Loans against property. This is a secured loan, but it differs fundamentally from home loans. In this loan, the owned property is mortgaged to the financing institution for a certain tenure. The loan amount is fixed at about 70% of the property’s value at the time of application. The money can be used to buy new property or make large business payments.
4. Personal loans. These are unsecured loans with a high rate of interest. They are typically extended against the applicant’s credit history and income capacity, for a period generally not extending five years. The money can be used to fund child’s education or wedding, or personal medical procedure, etc.
5. Business loans. These are offered to businesses in both the urban and rural areas at a slightly higher rate of interest than home loans or loans against property.
6. Commercial vehicle loans. Some businesses require their own vehicles for the daily transport of goods and staff. These vehicles may comprise mini-vans, trucks, jeeps, SUVs or even trailers.
7. Two wheeler loans. These are useful for people in the rural areas, who find it easier to navigate bad, narrow roads on two wheelers. Premier financial institutions in India have made the two wheeler loan application process extremely simple.
8. Education loan. Education loans are popular products for those families wishing to send their children to national or foreign universities for higher education.
9. Rural housing loans. People in the rural hinterland are now able to buy their own land or ready houses on the basis of rural housing loans. The loan amount is given up to 70% of ready homes and up to 80% of self-constructed homes.
10. Rural business loans. Small and medium businesses in the rural areas of the country are now able to set up small office spaces, buy factory space and even invest in machinery through rural business loans.