Equity investments have long served as wealth-building instruments, but in times of liquidity crunch, they can also be leveraged to raise quick funds. Rather than selling off shares and disrupting one's portfolio strategy, individuals can opt for a loan against shares, a secured borrowing facility that allows access to credit while retaining ownership of the securities. As financial institutions streamline the loan process in 2025, the documentation required to avail such a facility has been minimised, making it quicker and more accessible. This article outlines the minimum documents needed, along with essential insights into the application process, benefits, and how the loan against shares interest rate is determined.
What is a loan against shares?
A loan against shares is a secured loan wherein an investor pledges their shares held in dematerialised form to a lender in return for a sanctioned credit amount. Unlike a sale, this process does not involve the transfer of ownership but places a lien on the pledged shares. Borrowers can continue to benefit from corporate actions like dividends or bonus issues, while accessing funds for personal or business needs.
Most loans against shares are provided as overdraft facilities or short-term term loans. The flexibility to use the funds for any purpose, along with a relatively low interest burden, makes this a preferred financing option among equity investors.
Minimum documentation required in 2025
As of 2025, most banks and non-banking financial companies (NBFCs) have digitised the loan application process, significantly reducing paperwork. However, certain documents are still mandatory to meet regulatory and risk requirements. The basic documentation typically includes:
● Proof of identity
○ PAN card (mandatory as shares are linked to the PAN database)
○ Passport, voter ID, driving licence, or Aadhaar card for identity validation
● Proof of address
○ Utility bill (electricity, water, or gas) not older than three months
○ Passport, Aadhaar card, or registered rental agreement
● Demat account statement
○ Recent holding statement (from NSDL or CDSL) to verify the availability and eligibility of pledged shares
● Bank account details
○ Cancelled cheque or recent bank statement for disbursal and repayment linking
● Photograph
○ Recent passport-size photograph (for in-person applications or where biometric KYC is pending)
Additional documents may be required for applicants seeking higher loan amounts, including:
● Income proof (ITR, salary slips, or bank statements)
● Business proof (for self-employed individuals)
● Form 16 or audited financials (for large ticket loans)
Digital documentation and e-KYC
Many lenders now support e-KYC and online document submission, allowing applicants to apply through mobile apps or websites without visiting a branch. Key benefits of this system include:
● Instant PAN and Aadhaar verification
● Automatic linking of Demat and bank accounts
● eSign facilities for faster agreement processing
● Upload facility for scanned documents or digital PDF statements
This not only reduces turnaround time but also improves convenience, especially for salaried professionals and frequent investors.
Eligible securities and approved lists
Not all shares are eligible to be pledged. Each lender maintains an approved list of securities, which includes liquid, publicly listed stocks with high trading volumes. Eligibility often depends on the following criteria:
● Shares must be held in a Demat account (physical shares are not accepted)
● Only fully paid-up equity shares are eligible
● Securities must belong to approved companies listed on NSE or BSE
● The value of the shares must meet the lender’s minimum threshold (e.g., Rs. 1 lakh portfolio value)
Pledging of restricted, illiquid, or highly volatile shares may be disallowed or attract a lower loan-to-value ratio.
Understanding the loan-to-value (LTV) ratio
The loan-to-value (LTV) ratio determines how much loan you can receive against your pledged shares. As per SEBI regulations and lender-specific policies, this usually ranges between 50 percent and 70 percent of the market value of approved securities.
For example, if an investor holds shares worth Rs. 10 lakh, they may receive a loan amount between Rs. 5 lakh and Rs. 7 lakh, depending on the shares' stability and category.
LTV is re-evaluated periodically. If the share prices fall significantly, lenders may initiate a margin call, asking borrowers to either repay part of the loan or pledge more securities to maintain the LTV threshold.
Loan against shares interest rate
The loan against shares interest rate is one of the most critical factors when selecting a lender. It varies based on several factors:
● Nature of pledged shares (blue-chip stocks may attract lower rates)
● Value of the loan and pledged portfolio
● Borrower’s credit profile
● Loan tenure and repayment plan
● Type of facility (overdraft vs. fixed term loan)
Typical interest rates in 2025:
● For overdraft-linked loans: 9 percent to 11.5 percent per annum
● For term loans: 10 percent to 13 percent per annum, based on creditworthiness and share quality
Many lenders also offer special interest rates to existing Demat account holders or high-value clients. Always verify if the rate is fixed or floating before proceeding.
Advantages of a loan against shares
This financing route offers several compelling benefits compared to personal loans or selling shares:
● No need to sell investments: Ownership remains intact, and market growth benefits continue
● Lower interest rates: Secured nature reduces risk, hence cheaper borrowing
● Quick disbursal: Minimal documentation and digital processing enable fast credit
● Flexible usage: Funds can be used for medical needs, business, education, or emergencies
● Overdraft facility: Pay interest only on the amount used, not the entire sanctioned limit
Things to consider before applying
While the process is simple, it is important to keep a few factors in mind:
● Ensure pledged shares are part of the lender’s approved list
● Track share prices regularly to avoid margin calls
● Avoid pledging highly volatile stocks for large loans
● Review the complete fee structure: processing charges, renewal fees, and late payment penalties
● Confirm whether interest is charged monthly, quarterly, or on daily overdraft usage
Final thoughts
A loan against shares is an effective solution for investors seeking liquidity without parting with their investments. With minimal documentation, streamlined digital processes, and competitive interest rates, this loan product is now more accessible than ever. Understanding the basic requirements, especially around documentation and eligibility, helps ensure quick approval and hassle-free borrowing. When used responsibly, this facility serves as a powerful financial tool, balancing short-term needs with long-term equity growth.