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What is Loan Against Securities (LAS)?

Loan Against Securities (LAS) is a facility wherein stocks and mutual funds in the demat account can be pledged to avail loan against it. LAS is similar to a loan against gold or a loan against property.

What are the features of LAS?
  • Loan application process is completely online.
  • Minimum loan amount of ₹ 25,000.
  • Maximum loan amount of ₹ 1 Crore.
  • Loan tenure of 1 year with an auto-renewal post 1 year.
  • Maximum loan tenure of 2 years.
  • Only outstanding monthly interest is due every month & principal can be repaid any time within 12 months.
  • Completely online process.
  • Loan amount is credited into your bank account within 1 working day.
  • Flat annualised interest rate of 11.5% per annum for all Zerodha Capital clients.
  • Large list of approved stocks.
  • Amongst the lowest processing fee in the industry.
  • No hidden charges.
  • Dashboard for easy loan management.
  • Easy top-up loan process.
  • A haircut of 55% to avoid constant notifications.

The above-mentioned conditions are subject to change from time to time. Visit zerodhacapital.com/approved-list to know the list of approved stocks for LAS.

Whom should I pledge the securities to?

To avail loan against the securities, the securities must be pledged to Zerodha Capital Private Limited (ZCPL). ZCPL is a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India (RBI).

What is the process of availing the loan?

Loan against securities can be availed online in a few minutes by following these steps:

  • Onboard with Zerodha Capital Private Limited as a customer.
  • Enter the amount of loan required.
  • Select the securities that need to be pledged.
  • E-Sign the loan documents.
  • Create a pledge via OTP.
  • Wait for the money to be credited to the bank account.
How much loan can be taken?

The amount of loan depends on the market value of the securities held in the demat account. The market value of securities is calculated as per the closing price as on the previous day from the date of loan disbursal. RBI permits an NBFC to lend up to 50% value of the securities pledged as collateral.

At Zerodha Capital Private Limited, the maximum loan amount available for disbursal is 45% of the market value of the securities. For example, if the value of the securities is ₹1,00,000, then a maximum loan of ₹45,000 can be disbursed. This is kept at 45% to avoid constant notifications and reminders in case the value of the shares reduces anywhere between 0.1-5%.

During the onboarding process, the securities from the holdings that are a part of the approved list of securities are fetched, and against each security, the amount of loan that can be disbursed is displayed. The approved list of securities can be found by visiting zerodhacapital.com/approved-list. The user can decide the security and the quantity to be pledged. Depending on the security and the quantity pledged, the final loan amount will be displayed.

What is the processing fee for availing a LAS at Zerodha Capital?

A flat fee of ₹436 that is non-refundable must be paid during the online loan application process, irrespective of the loan amount. The breakup of ₹436 is as follows:

  • ₹200 for stamp duty charges as per the Department of Stamps and Registration, Government of Karnataka, for the loan application.
  • ₹200 + 18% GST (₹236) towards processing the loan application.
What are all the charges incurred while availing loan against securities?

The list of charges (non-refundable) are as follows:

Charges paid to Zerodha Capital Private Limited
Processing fee per loan ₹436
Confiscation charges (Equity) 0.7% of the sell value
Confiscation charges (Equity mutual fund) 1.5% of the sell value
Interest rate (subject to change from time to time) 11.5% per annum
Penal charges* (subject to change from time to time)
18% per annum

Charges paid to your Depository Participant(DP)**
Pledging (per security) ₹32
Unpledging (per security) ₹32
Invocation of pledge ₹20

*Penal charges are levied only when there is a default in the payment of monthly interest.
**Charges applicable across brokers

How is the Loan To Value (LTV) ratio calculated?

If the pledged value of the securities in the demat account is ₹5,00,000, then as per RBI’s guidelines, the maximum loan that can be disbursed is ₹2,50,000.

Value refers to the value of the securities held in the demat account, which is ₹5,00,000, and loan refers to the amount of loan disbursed, which is ₹2,50,000.

The LTV ratio is -
= 2,50,000 / 5,00,000
= 50%

The LTV ratio also tends to rise when there are outstanding interest and penalty charges, The LTV ratio can be determined using the following formula after the loan has been disbursed:

LTV = (Pending principal amount + Outstanding interest + Penalty charges) / Market value of the pledged securities.

To illustrate, let's assume the value of the security has fallen to ₹4,50,000, and there is an outstanding interest of ₹1,000 along with a penalty of ₹50. The new LTV ratio is calculated as follows:

The LTV ratio will be -
= (2,50,000 + 1,000 + 50) / 4,50,000
= 55.78%

As per the RBI regulations, the borrower is expected to maintain a 50% LTV during the loan tenure.

Can the LTV fluctuate?

Yes, the LTV is variable in nature as the value of the securities fluctuates. LTV is calculated each day after the markets close at 4 P.M.

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
= 55%

LTV decreases when the value of the securities increases. For example, assume the value of the securities increases to ₹5,50,000. The new LTV ratio is –

2,50,000 / 5,50,000
= 45.45%

How to maintain the LTV below 50%?

LTV is variable in nature as the value of the securities fluctuates. LTV can go above 50% or below 50%. To bring back the LTV to 50%, either more securities must be pledged or the principal amount must be paid back to reduce the principal outstanding.

LTV decreases when the value of the securities increases. No action is required if the value of the securities increases.

What happens if the Loan to Value (LTV) ratio exceeds 50%?

RBI mandates that clients availing loans against securities from NBFCs shall always maintain an LTV of 50%. Any shortfalls in this regard shall be made good within a 7 day period. As the LTV may constantly fluctuate, the timelines mentioned below must be kept in mind. To bring back the LTV to 50%, either pledge additional securities or repay part of the principal outstanding 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 up to 60% Notice day plus 7 days
LTV higher than 60% On the notice day by 7 PM
Will a notification be sent if the LTV ratio increases?

Yes, in case the LTV goes higher than the required threshold of 50%, Zerodha Capital will notify clients via emails and automated voice blasts. Clients are requested to either pledge additional securities (to the extent of the shortfall) or repay part of the principal outstanding to get the LTV below 50%.

How can additional securities be pledged to maintain the LTV?

To pledge additional securities, visit the loans dashboard and pledge additional securities to maintain the LTV position. The top-up loan feature on the dashboard must be used to pledge additional securities.

Ensure to click on the check-box: Disbursement not required to ensure that no disbursement of funds happens and only securities are pledged to enhance the LTV ratio.

What does confiscation of pledged shares or mutual funds mean?

Confiscation, in the context of Loan against Securities, is the movement of clients' pledged securities from the client's demat account to the NBFC’s demat. A confiscation is triggered when the securities value drops below 50% haircut, creating a Loan to value (LTV) shortfall. The client can pledge additional securities or repay part of the loan amount to bring down the LTV below 50%. In the event the client does not do either, a confiscation is triggered as explained here.

What happens if the LTV is not brought down?

The NBFC will be forced to invoke the pledge and liquidate the securities (partly or fully) to make good for the shortfall in LTV. Confiscation charges as per the charge list will be applicable if the NBFC is forced to invoke the pledge.

What is the interest rate for the loan?

A flat annualised interest rate of 11.5% per annum is charged. The interest rate is subject to change depending on the prevailing economic situation.

How is monthly interest computed for loan against security?

LAS requires the client to service just the interest rate applicable on a monthly basis. The concept of EMI is not applicable to LAS. For example, if ₹2,50,000 is borrowed at an interest rate of 11.5% per annum, then the daily interest rate is –

11.5% / 365
= 0.0315%

The daily interest amount is –

0.0315% * 2,50,000
= ₹78.75/-

So for a month with 30 days, the interest amount applicable is –

78.75 * 30
= ₹2,362.5

What will happen if an interest repayment is not made?

If an interest repayment is not made or if it is partially paid, a penalty will be levied on the defaulted amount. The penalty is dependent on the penal charges.

A report is sent to Credit Information Companies (CICs) at the beginning of each month with the details of the interest payments made for the past month. If the interest repayment is not made or partially paid, the CICs will reduce the credit rating.

What are the minimum and maximum amounts of loan that can be availed?

The minimum amount of loan is ₹25,000, and the maximum amount is restricted to ₹1 Crore. This maximum loan amount is cumulative across all loans you may have with Zerodha Capital Private Limited, including top-up loans, if any. The maximum loan that can be availed per day is ₹50 lakhs.

Can the loans be foreclosed, and are there any charges for foreclosure?

Yes, the loans can be foreclosed and pre-paid at any time. For example, if the loan amount is repaid within 2 months, the interest on the loan must be paid only for 2 months. See How to make interest repayments?

There are no charges for prepayment or foreclosure of the loan.

What is the due date to repay the monthly interest due for the loan?

The due date to repay the monthly outstanding amount or interest is the 7th of every month. Penal charges will be charged if repayment is made after the 7th of each month.

How is the penalty calculated when I miss paying the interest?

The interest payment for your loans is due on the 7th of every month. The penalty is calculated at 18% of the interest per annum divided by the number of days the interest payment has been pending for.

For example, the interest for your loan is due on the 7th of February of Rs.1000. You miss the payment on the 7th of February. If you pay the interest on the 11th of February instead, the calculation of penalty is simple. It is 18% of Rs.1000 divided by 3 days (8th, 9th and 10th).

1000 * 18/100 * 3/365 = 1.479 Rs.

How to repay the loan?

Loans can be repaid by visiting the ‘Make re-payment’ tab on the loan dashboard. Upon clicking this tab, a pop-up is displayed where the clients must select the ‘Minimum or custom amount’ option and enter the amount they would like to pay. Repayment of loans can be made at any point in time.

Repayment towards the loan can be made through netbanking or UPI. Zerodha Capital does not accept repayments through credit cards, NEFT/RTGS, cash or cheques.

What should I do if a payment is not reflecting on my statement?

If a payment is not reflected on the statement even after 2 hours of making the payment, please share your debited bank account statement by creating a ticket, and our representative will assist you.

How to close the loan?

To close the loan visit the Close Loan tab on the loan dashboard. The total amount due including the principal and interest will be displayed. The loan will be closed once the total amount due is paid.

Zerodha Capital may need 3 working days to unpledge the securities after the total amount due is paid. Rest assured, Zerodha Capital will try to expedite this as much as possible.

What is CKYC Number?

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 and PFRDA. Clients who have completed their KYC with any financial institution would receive a CKYC number. This CKYC number is requested during the sign-up by Zerodha Capital.

What is FATCA?

It stands for Foreign Account Tax Compliance Act (FATCA). The Indian Government signed the Inter-Governmental Agreement (IGA) with the USA in 2015 to implement FATCA. As per the agreement, Indian tax officials must obtain certain account information from US taxpayers. The goal was to ensure US citizens’ tax compliance and increase 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 to the Income tax department of India.

Who is a Politically Exposed Person (PEP)?

Three kinds of people may come under the definition of PEP:

  • A political figure: a senior official in the executive, legislative, administrative, military or judicial branches of government.
  • The immediate family of a political figure: typically includes the politician’s parents, siblings, spouse, children, and in-laws.
  • A close associate of a political figure: a person who is widely and publicly known to maintain an unusually close relationship with the political figure and includes a person who is in a position to conduct financial transactions on behalf of the political figure.

PEPs are considered to be high risk customers for financial institutions 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 money laundering offences.

Which securities can be pledged as collateral to avail a loan?

The approved list of securities can be found by visiting zerodhacapital.com/approved-list. RBI only permits a particular list of Group 1 securities to be allowed for collateralising for a loan by NBFCs. Zerodha Capital Private Limited 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.

Why is the tenure for LAS 1 year, and what does Auto Renewable mean?

All loans offered by Zerodha Capital are categorized as demand loans, requiring repayment within one year. Unlike traditional loans with fixed EMI structures, demand loans provide flexibility, allowing for the payment of only the minimum outstanding interest every month. Initially set for a one-year term, these loans can be renewed for an additional year if there is an outstanding balance. 

The maximum tenure for LAS loans is limited to two years. Customers must repay the outstanding and close the loan within two years.

What is Sanction Limit?

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 Private Limited is generally ₹ 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 securities 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.

Why does the KYC take up to 72 hours to update?

CKYC (Central KYC) is the central repository maintained by CERSAI. Any update in KYC that is made by the financial institution (such as Zerodha Capital Private Limited) and uploaded to CKYC takes up to 72 hours to be updated.

How to avail a LAS if a Zerodha demat account is not held?

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.

Office address:
Zerodha Capital Private Ltd.,
#175/176, 2nd Floor
Bannerghatta Main Road,
next to Rainbow Hospital,
Bilekahalli, Bengaluru - 560078
Karnataka

What is the process involved in availing a loan if a non Zerodha demat account is held?

Zerodha Capital is the Non-Banking Financial Company (NBFC) arm of Zerodha. It offers loans against securities held in the demat account in a few simple steps that can be completed offline for non Zerodha demat accounts.

To avail a loan against securities, follow these steps:

  1. Onboard with Zerodha Capital Private Limited as a customer by filling out the application form.
  2. Download, print, and fill out the pledge request form from your depository participant (DP). Ensure to enter the pledgor and pledgee (Zerodha Capital Private Limited) demat account details, ISIN with quantity, expiry date, agreement number, and signature.
  3. In this context, the financial entity (Zerodha Capital Private Limited) will be the pledgee, and the person applying for the loan will be the pledgor.
  4. Submit the acknowledgment copy that is received from your DP after setting up the pledge by visiting the following address.

    Zerodha Capital Private Ltd.,
    #175/176, 2nd Floor Bannerghatta Main Road,
    next to Rainbow Hospital,
    Bilekahalli, Bengaluru - 560078
    Karnataka

  5. Sign the master loan agreement and the term sheet at Zerodha Capital's office.
  6. The loan will be processed within 48 hours.

Unpledging of securities:

  1. The outstanding amount, including principal, interest, and any other charges, needs to be paid to clear all outstanding dues.
  2. Zerodha Capital will then issue an instruction to Zerodha DP to unpledge the shares.
  3. Zerodha Capital Private Limited may need 3 working days to process the unpledging of shares.
  4. The loan closure confirmation email will be sent after the due process is complete.
What terms and documents must be agreed upon for availing a LAS?

There are mainly 3 documents that must be agreed upon to complete the loan application successfully:

  • Term Sheet: A Term Sheet is an acknowledgement provided by the client for understanding all the terms, policies, and conditions with respect to each loan/disbursement availed, along with the details of the securities pledged to avail the loan;
  • Master Loan Agreement: A Master Loan Agreement is a written contract between the client and Zerodha Capital Private Limited, stating in detail all terms, conditions, and stipulations regarding the loan, and such future part loans/disbursements falling under the same sanctioned loan; and
  • E-Pledge consent: An e-pledge consent is a feature provided by the depository, i.e., Central Depository Services (India) Limited (CDSL). It is an OTP based mechanism that allows the client to pledge their stocks with Zerodha Capital Private Limited and process a loan based on such pledged stocks.
Will taxation benefits be received by repaying the interest on LAS?

No, taxation benefits with respect to the interest repaid on the loan with respect to LAS will not be received.

Will pledging shares remove them from being considered as long term holdings, and will long or short term capital gains be applicable on pledged shares?

There will be no changes with respect to tax consideration for the shares provided as collateral for securing the loan. There would be a change of duration for calculating capital gains only if the shares unpledged and sold by the client, or if the shares are confiscated by Zerodha Capital.

Can NRIs avail loan from Zerodha Capital Private Limited?

No, LAS is available only for resident Indian individual account holders.

Can a HUF or private company avail a loan from Zerodha Capital Private Limited?

No, currently, LAS is not available for non-individual accounts.

Can joint account holders avail a loan from Zerodha Capital Private Limited?

No, currently, LAS is not available for joint account holders.

Why is the nudge "Select several stocks or select mutual funds from your portfolio" shown?

This nudge is shown when clients choose to take a loan by selecting to pledge only one security or only stocks when there are mutual funds available in the portfolio. It is always preferable to take a loan by pledging multiple securities along with mutual funds to reduce the chances of receiving LTV calls due to adverse volatility.

In what scenario does Zerodha Capital confiscate the Securities?

The confiscation of pledged shares by Zerodha Capital can occur under these scenarios:

  • Increased LTV above 50% for Seven Consecutive Days: If the Loan-to-Value ratio for your pledged shares remains elevated for seven consecutive days, and you do not bring in the funds to reduce the LTV, Zerodha Capital may invoke the pledge and confiscate the shares. In this situation, you can pledge additional securities to bring down the LTV.
  • LTV Reaches 60% or Higher: Zerodha Capital may immediately confiscate the securities on the same day if the LTV ratio of the pledged securities reaches or exceeds 60%. 60% LTV ratio is considered a threshold, triggering the confiscation of securities.
  • Non-Payment of Interest for 90 Consecutive Days.

It is important to note that the confiscation of pledged securities is a measure of last resort, and securities are confiscated only to the extent of outstanding interest. It is only initiated when the client fails to respond or take corrective action despite multiple reminders and notifications regarding the LTV breaches and non-payment of interest.

When does Zerodha Capital initiate the Closure and Confiscation of the pledged securities?

The closure and confiscation process for pledged securities when there is:

  • Non-Payment of Interest for 3 Months: When the interest amount remains unpaid for the last 3 months, the pledged securities are confiscated, and the loan is closed. The confiscated securities cover only the extent of the outstanding interest plus the principal amount, and any surplus is credited to the client’s bank account.
  • Non-Repayment of Loan within 24 Months (2 Years): If the client does not repay the loan within 24 months or two years from the loan's initiation, the loan is closed, and the pledged securities are confiscated. These confiscated securities are utilized to settle the outstanding amount, and any excess funds are returned to the client’s bank account.

Zerodha Capital proactively communicates with clients through various emails and SMS notifications regarding the closure of loans. Confiscation of shares and loan closure is only initiated when the client fails to respond despite the outreach.

Will the interest rate remain consistent throughout the entire loan term?

The interest rate for the loan is subject to periodic reviews, with adjustments made every three months based on dynamic factors such as the prevailing economic landscape, borrowing costs, market conditions, and the Central Bank's Monetary Policies. We ensure transparency in these adjustments, and provide clients with advance notices of any changes at least one month before implementation.

Will eligibility for corporate action benefits be affected if my stocks are pledged for a loan?

Customers who have pledged their stocks to avail a loan will continue to qualify for benefits from corporate actions. To stay informed about all ongoing and forthcoming corporate actions, you can refer to this list (DOC).

Still have queries?

Please create a ticket here to contact support.