Loan against securities (LAS) is a facility wherein you can pledge the stocks and mutual funds in your DEMAT account and avail a loan against it. LAS is similar to loan against gold or loan against property.
To avail loan against the securities, you are required to pledge the securities to Zerodha Capital Private Limited. Zerodha Capital, holds a Non Banking Financial Company (NBFC) licence from ‘The Reserve Bank of India (RBI)’, which permits the company to lend.
Loan against securities can be availed by following few simple steps:
The entire process is online and takes a few minutes to complete.
The amount of loan depends on the market value of the securities you hold. RBI permits the NBFC to lend upto 50% value of the securities you hold. For example, if the value of the securities is Rs.5,00,000/-, then a maximum loan of Rs.2,50,000/- can be disbursed.
At Zerodha, the LTV to be maintained is 55% (subject to change from time to time). This is kept at 55% to avoid constant notifications and reminders in case the value of the shares reduces anywhere between 0.1-5%.
|Zerodha Capital – List of charges|
|Processing Fee for each Loan||₹436|
|Pledge (per scrip)||₹32|
|Unpledge (per scrip)||₹32|
|Invocation of Pledge||₹20|
If the value of the assets you have is ₹5,00,000/- then as per RBI’s guidelines, the maximum loan you can get is ₹2,50,000/-.
Here ‘Value’ refers to the value of the securities that you hold, which is Rs.5,00,000 and ‘loan’, refers to the amount of loan disbursed to you, which is ₹2,50,000.
The LTV ratio is -
= 2,50,000 / 5,00,00
As per the RBI regulations, the borrower is expected to maintain a 50% LTV during the tenure of the loan.
LTV increases when the value of the securities decreases. For example, assume the value of the securities decreases to ₹4,50,000. The new LTV ratio is –
2,50,000 / 4,50,000
To bring back the LTV to 50%, you either need to pledge more securities or reduce the principal outstanding.
LTV decreases when the value of the securities increases. No action is required if the value of the securities increase.
RBI has stipulated that clients availing loans against securities from NBFCs, shall always maintain a LTV of 50% which shall be made good within a 7 day period. As the LTV may constantly fluctuate, you must keep in mind the below timeline to make good of the 50% LTV. To bring back the LTV to 50%, you may either further pledge additional securities or repay a certain amount of the loan.
|Loan to value (LTV) ratio variation from RBI stipulated of 50% (or lower)||Time to make good & bring back LTV to 50%|
|LTV between 50% to 55%||Notice day plus 5 days|
|LTV between 55% to 60%||Notice day plus 3 days|
|LTV higher than 60%||Notice day (must be done on the same day by 4pm)|
Yes, in case the LTV goes higher than the required threshold, then we will communicate the same with you (also called the LTV calls), and request you to either bring in more securities (to the extent of the short fall) or repay part of the principal outstanding.
The NBFC will be forced to invoke the pledge and liquidate the securities (partly or fully) to make good for the shortfall in LTV.
The interest rate for LAS loan is 10.5%. The interest rate is not constant and is subjected to change depending on the prevailing economic situation.
LAS loans require you to service just the interest rate applicable on a month on month basis. There is no concept of EMI applicable to LAS loans. For example, if you have borrowed Rs.2,50,000/- at an interest rate of 10.5%, then the daily interest rate is –
10.5% / 365
The daily interest amount is –
0.0287% * 2,50,000
So for a month with 30 days, the interest amount applicable is –
85.6164 * 30
If you miss repaying the interest amount or if you partially repay the interest amount, then a penalty will be levied on the defaulted amount. The penalty is dependent on the ‘Penal interest rate’.
The penal interest rate is 18% per annum.
The minimum amount of loan is ₹25,000/- and the maximum amount is restricted to ₹1,00,00,000/-
Yes, you can pre-close and pre-pay your loan amount at any time. For example, if you repay your loan amount within 2 months, you will only have to pay interest on your loan for 2 months and nothing more.
There are no charges with respect to prepayment or closing your loan early.
CKYC (Central KYC) is the central repository from CERSAI, where all KYC information is uploaded by all financial institutions across entities regulated by SEBI, RBI, IRDA & PFRDA. All persons who have completed their KYC with any financial institution, would receive a CKYC number, which is requested by Zerodha Capital at the beginning, so that KYC information can be fetched directly from CKYC.
It stands for Foreign Account Tax Compliance Act. The Indian Government signed the Inter-Governmental Agreement (IGA) with USA in 2015 for implementation of FATCA. As per the agreement, Indian tax officials must obtain certain account information from US taxpayers. The goal was to ensure tax compliance by US citizens and increasing transparency for their Internal Revenue Service (IRS). This gave a legal basis for the Reporting Financial Institutions to maintain and report personal and income details.
There are three kinds of people who may come under the definition of PEP:
PEPs are considered to be high risk customers for financial institutions because owing to their position of prominence, they are more likely to be presented with opportunities for acquiring assets through unlawful means or being involved in embezzlement, corruption or other serious offences of money laundering.
Max available is the maximum amount of loan which can be taken by you against one stock from your holdings.
The Max available amount is the amount that is available as a loan against each stock for you, after applying the haircut of 55%, as per the LTV maintenance rules set by Zerodha Capital in line with the RBI Regulations.
RBI only permits a particular list of Group 1 securities to be allowed for collateralising for a loan by NBFCs. Zerodha Capital has its own list of curated scrips from the Group 1 list of securities, as per its risk management policies, which are eligible and permitted for the loan against securities product. The approved list of securities can be found here.
All loans at Zerodha Capital are demand loans. Demand loans are short term loans which need to be repaid within one year. Demand loans need not be structured similar to loans which have repayments structured as an EMI repayment.
Therefore, demand loans are flexible where only minimum outstanding interest can be paid every month, and principal can be repaid anytime within 1 year.
All loans at Zerodha Capital have a tenure of 12 months, after which the unpaid amount would automatically renew as a new loan & customers would be required to execute a new set of loan documents.
Sanction Limit is the maximum amount of loan that can be availed by you, after E-Signing one master loan agreement.
The Sanction Limit provided to customers of Zerodha Capital is generally either a minimum of Rs. 5,00,000 (Five Lakh) or up to 3 times your holdings amount; whichever is higher.
At any point in the future, if you wish to bring in/purchase additional stocks in your Zerodha account and take a loan against it for an amount greater than the current Sanction Limit, you would require to E-Sign a new loan agreement and enhance your Sanction Limit.
Yes, you would be paying a flat fee of ₹436 during your online loan application process irrespective of the loan amount. The breakup of ₹436 is provided below:
CKYC (Central KYC) is the central repository maintained by CERSAI. Any update in KYC that is made by the financial institution (such as Zerodha) and uploaded to CKYC, it takes upto 72 working hours for the information to be updated.
Currently, clients only having a demat account with Zerodha shall be permitted to avail loans against securities online.
There are mainly 3 documents which you would have to agree to to successfully complete your loan application:
The due date to make repayment with respect to your monthly outstanding amount / interest is the 7th of every month at Zerodha Capital.
You could login to your Zerodha account, and visit Console, and visit the ‘Repayment’ link on your dashboard to make a repayment with respect to your loan at any point of time.
You may make a repayment towards your loan through NEFT, RTGS or UPI. We, at Zerodha Capital, do not accept any cash or cheques as a mode of repayment.
No, you will not receive any taxation benefits with respect to the interest repaid on the loan with respect to LAS.
Please create a ticket here to contact support.
There will be no changes with respect to tax consideration with respect to the shares which you provide as collateral for securing the loan. Only in the event of your shares being sold, due to non-repayment of loan amount or as per your instructions, would there be a change of duration for calculating taxes.
If you wish to avail a loan against securities via a different demat account/broker, then please visit our office in Bangalore to complete your documentation process & to check your eligibility.
Our office address:
Zerodha Capital Private Ltd., #153/154, 4th Cross Rd, JP Nagar 4th Phase, Dollars Colony, Bengaluru - 560078