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Advance Against Securities: Understanding the Concept

An advance against various securities is a type of loan offered by banks, financial institutions, and brokerage firms. It is a loan that is granted to an individual or a business against the collateral of their securities such as stocks, bonds, mutual funds, or other securities. In this blog post, we’ll take a closer look at this type of loan, its eligibility criteria, and answer some commonly asked questions.

Understanding the Concept

The concept of advance against various securities is simple. A borrower pledges their securities as collateral for the loan, and the lender grants the loan based on the market value of the securities. The loan amount can range from 50% to 70% of the market value of the securities, depending on the lender’s policies.

The borrower continues to hold the securities during the loan period, and the lender has the right to sell the securities in case the borrower defaults on the loan repayment. The interest rates on advance against various securities are typically lower than other types of loans, as the loan is secured against the collateral of the securities.

Eligibility Criteria  for Advance Against Various Securities

To be eligible for an advance against various securities, a borrower needs to meet the following criteria:

  1. The borrower should be an Indian resident or an NRI.

  2. The borrower should be at least 18 years old.

  3. The borrower should have a demat account with the securities they want to pledge.

  4. The borrower should have a good credit score.

  5. The borrower should have a steady source of income.

  6. The borrower should be able to provide all the necessary documents required by the lender.

FAQs

What type of securities can be pledged for an advance against various securities?

Stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other securities can be pledged for an advance against various securities.

What is the loan amount that can be availed against the securities?

The loan amount can range from 50% to 70% of the market value of the securities, depending on the lender’s policies.

What is the tenure of the loan?

The tenure of the loan can range from 1 year to 3 years, depending on the lender’s policies.

What happens if I default on the loan repayment?

If you default on the loan repayment, the lender has the right to sell the securities and recover the loan amount.

Can I continue to trade in the securities during the loan period?

No, you cannot trade in the securities during the loan period, as they are pledged as collateral for the loan.

Therefore to Conclude, an advance against various securities is a type of loan that can be beneficial for individuals or businesses who need quick access to funds. However, it is important to carefully consider the risks associated with the loan, such as the potential loss of the pledged securities if the borrower is unable to repay the loan on time. It is advisable to consult with a financial advisor before availing of this type of loan.

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