What is a loan against shares?

A loan against shares (LAS) lets you borrow by pledging listed shares you already own. The shares stay in your demat account but are marked as pledged to the lender, so you cannot sell or transfer them until the pledge is released. In return, you get an overdraft limit or a short-term loan.

LAS suits investors who hold shares for the long term and need cash for a few months, without selling and paying capital gains tax. It is a borrowing product, not a way to grow your portfolio.

How the pledge and haircut work

You request the pledge through your depository participant, and NSDL or CDSL sends you an OTP to confirm it. The lender then values each pledged stock at its market price and applies a haircut, a cut from that value to protect against price falls.

Haircuts differ by stock. A large, actively traded company may get a smaller haircut than a smaller or more volatile one, and some shares may not be accepted at all. Your drawing power is the total of these discounted values, capped at the sanctioned limit, and it is recalculated as prices move.

When prices fall: margin calls

As an illustration, say your pledged shares are worth ₹20 lakh and the lender allows 50% on them, giving you a limit of ₹10 lakh. You draw ₹9 lakh. If the shares fall 25% to ₹15 lakh, your limit drops to ₹7.5 lakh and you face a shortfall of ₹1.5 lakh. The percentages here are illustrative only.

You would need to repay that amount or pledge more approved shares within the time the lender allows. If you do not, it can sell your shares. Two things make this painful:

  • Sales tend to happen when prices are already low.
  • The sale counts as yours for tax. Short-term gains on listed equity are taxed at 20%, and long-term gains at 12.5% above ₹1.25 lakh a year.

What to check in a loan against shares offer

  • The approved list and haircuts for the shares you hold, since these decide your real limit.
  • Interest rate and APR, plus processing, pledge and invocation charges.
  • Shortfall process: how you are alerted and how much time you get.
  • Diversification: a limit spread across several companies is less exposed to one stock's fall.

Because each lender's stock list is different, the same portfolio can support very different limits. Our team compares LAS offers from 40+ banks and NBFCs so you see those differences before you pledge.