Understanding Loan on Security for Better Financial Planning

Financial planning is often described as the art of making your money work harder. But there is another side to it — knowing how to access money smartly when you need it, without disrupting the assets you have already built. This is where a loan on security becomes a powerful tool.

A loan on security, more commonly called a loan against securities, is a facility where you pledge your financial assets — shares, mutual funds, fixed deposits, bonds, or insurance policies — as collateral and receive a loan against their value. The assets are not sold. They continue to belong to you. You simply use their value as backing for short-term or medium-term borrowing.

What Makes It Different from Other Loans

Most loans — personal loans, credit card debt, even some business loans — are unsecured. You borrow on the basis of your income, credit score, and repayment history. These loans are quick to apply for but expensive, typically costing 12% to 40% per annum.

A loan on security flips this. Because the lender holds your assets as collateral, the risk is dramatically lower. That reduced risk translates directly into a lower interest rate for you. With Bajaj Finance, the interest rate on loan against securities starts from 8% per annum — a fraction of what an unsecured loan would cost.

There is also no income proof requirement. Approval is based on the quality and value of your collateral, not your salary or business income. This makes it accessible even for investors who may not have a regular income stream.

The Range of Securities Accepted

One of the most practical features of Bajaj Finance’s loan against securities is the breadth of assets it accepts. You can pledge equity shares from an approved list of 1,000+ scrips, mutual fund units from 5,000+ approved schemes across 40+ AMCs, fixed deposits held with Bajaj Finance, life insurance policies including ULIPs and endowment plans from approved insurers, and bonds and debentures.

This flexibility means most investors with a reasonably built portfolio can find eligible collateral. The loan amount ranges from Rs. 10,000 to Rs. 1,000 crore for individuals, and even higher for corporates and other entities.

How the Drawing Power Works

Unlike a term loan where you receive the full amount upfront and pay EMI on the entire sum, a loan on security works as a revolving credit line. You are assigned a drawing power based on your pledged assets and withdraw from it as and when needed.

Interest is charged only on what you draw, only for the period you hold it. If your drawing power is Rs. 20 lakh but you only need Rs. 4 lakh for three months, you pay interest on Rs. 4 lakh for three months. This structure makes it significantly more cost-efficient than most alternative borrowing options.

Bajaj Finance also updates the valuation of pledged securities regularly — for mutual funds, every 5 minutes during market hours. If your portfolio value rises, your drawing power increases automatically. You can also use the loan against securities EMI calculator on the Bajaj Finance website to estimate your monthly interest outgo and plan your finances before applying.

Planning Your Finances Around This Facility

For someone building a sound financial plan, a loan on security solves a common problem: the gap between having wealth and having liquidity. Many investors are asset-rich but cash-poor in the short term. They have built a solid portfolio but face moments where they need liquid funds — for a business opportunity, a medical emergency, a large payment, or a temporary cash crunch.

Instead of liquidating investments — which may disrupt long-term goals and trigger tax events — a loan against securities lets you bridge the gap temporarily while your investments continue to work.

The LTV Ratio Matters

The Loan-to-Value or LTV ratio determines what percentage of your asset’s value you can borrow. With Bajaj Finance, this varies by asset class: up to 50% for equity shares and equity mutual funds, up to 90% for debt mutual funds and bonds, and up to 75% for fixed deposits. Understanding your LTV helps you plan how much to pledge and how much to borrow.

Maintaining the required LTV throughout the loan tenure is important. If asset values fall and the LTV breaches the permissible limit, you will need to either pledge additional assets or partially repay the loan. A conservative borrowing approach — staying well within your drawing power — gives you a buffer against market fluctuations.

The Right Way to Use It

The best use of a loan on security is for defined, short-term needs with a clear repayment plan. Tenures range from 7 days to 36 months. Borrow for a purpose you can articulate, and have a realistic plan to repay on time. Used with discipline, it is one of the smartest liquidity tools in a well-rounded financial plan.