Is it right to take a loan against your stocks or mutual funds? Know how big a loss can be due to a mistake..

Imagine you have built your portfolio of stocks and mutual funds with great effort. SIPs and investments have gradually grown over the years. But what will you do if you suddenly need money? Will you sell your shares or funds at this time and end the profits made so far? Or will it be right to take a loan against them?

This question is troubling many investors these days. The trend of Loan Against Securities has also increased, because it can get money without selling the investment. But be careful! Without proper understanding, this decision can make your dreams fall like a house of cards. Let us know the advantages and disadvantages of this decision, and the one mistake that can cause a big loss.

What is Loan Against Securities (LAS)?

Loan Against Securities, i.e., LAS, is a secured loan, in which you borrow money by pledging your stocks, mutual fund units, or bonds with a bank or NBFC. The biggest feature of this loan is that you do not need to sell the investment. Your holdings remain in the market, and you get instant cash.

As per the policy of banks, they can give loans of up to 50-75% of your investment. In 2025, the interest rate of such loans is between 9% to 15%, which is less than a personal loan but more than a gold or property loan.

What are its benefits?

Instant money - Through LAS, you can get quick funds for emergency or business needs.

Investment remains - Your portfolio remains in the market, which can give you the benefit of dividends or growth.

Low interest rate - This loan is cheaper than a personal loan or credit card loan.

Flexibility - The amount you use, the interest will also be charged, like an overdraft.

What are the risks?

Although this method is convenient, there are big risks hidden in it-

1. Market uncertainty
The value of stocks and mutual funds can fluctuate rapidly. If the market falls and the value of your investment falls below the prescribed limit, the bank can issue a "margin call". This means that you will either have to pay additional money or the bank can sell your investment.

2. Risk of forced selling
If you do not meet the margin call, the bank will forcibly sell your stocks or funds. This will cause your investment to be sold at the low level of the market and can cause a huge loss.

3. Low loan value
Usually, banks give loans only up to 50-75% of the investment. If the market goes down, the value of both your loan and investment can fall.

4. Tax and exit load
If the bank sells your mutual fund units, you may also have to pay tax and an exit load.

How can there be a big loss?
Suppose you took a loan by mortgaging your stocks at the high level of the market. If the market crashes, the value of your investment will decrease. The bank can make a margin call, and if you are unable to pay, your entire portfolio will be sold at a cheap price. In this way, you can suffer a double loss: the value of the investment will decrease, and you will also have to pay the loan interest.

Who should take it, who should not?

LAS is good for those investors who need funds for a short time and who understand the market risk. But if you do not have backup funds or you are not able to understand the market trend, then this method can be very dangerous.

Take these precautions before taking a loan.

Do not mortgage all the holdings - always keep some investments safe.

Check the interest rate and fees - The terms and conditions of every bank or NBFC can be different.

Monitor the portfolio - Keep an eye on the market to avoid margin calls.

Read the contract - Read the loan terms, penalties, and fees carefully.

Avoid over-borrowing - do not take more loans than needed.

Useful thing for investors?

Taking a loan against stocks or mutual funds can be a smart move if used correctly. This method gives you quick funds, and your investment remains intact. But it is also very risky due to fluctuations in the market. Without proper preparation, a backup plan, and caution, this method can put you in a financial crisis.

Disclaimer: This content has been sourced and edited from Navbharat Times. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.