5 Reasons Why a Loan Against Shares Could Be a Better Option Than Selling Them

Equity investments form a critical part of many investors’ portfolios, offering long-term growth and wealth creation. However, during times of financial need, investors often face the dilemma of whether to sell their shares or explore other funding options. One alternative that is gaining traction is taking a loan against shares. This facility allows you to access liquidity while retaining ownership of your stock portfolio.

In this article, we explain why a loan against shares could be a smarter choice than selling them, and what you should know about the loan against shares interest rate, eligibility, and benefits.

Understanding a loan against shares

A loan against shares is a secured borrowing facility offered by banks and non-banking financial companies (NBFCs). Investors can pledge their equity shares held in dematerialised form as collateral to receive funds. The loan amount is determined based on the market value of the pledged shares, and the lender places a lien on these securities for the duration of the loan.

Unlike selling, this option ensures that you do not lose long-term investment gains, tax benefits, or corporate action entitlements. Now, let us explore five compelling reasons why this can be a better option than liquidating your stock holdings.

1. You retain ownership and future gains

One of the most important benefits of a loan against shares is that you continue to own the shares even though they are pledged. This means:

• You remain entitled to dividends declared by the company
  
• You retain voting rights as a shareholder
  
• You continue to benefit from capital appreciation if the share price rises during the loan tenure
  

Selling your shares, on the other hand, cuts you off from all future profits, which could be significant if the market rallies shortly after your exit. A loan allows you to raise funds in the short term without disturbing your long-term wealth creation strategy.

2. You avoid capital gains tax liabilities

When you sell shares that have appreciated in value, you may be liable to pay capital gains tax. Depending on how long you have held the shares, the tax could fall under either:

• Short-term capital gains tax at 15 percent (for listed shares held for less than one year)
  
• Long-term capital gains tax at 10 percent beyond the Rs. 1 lakh annual exemption (for shares held over one year)
  

By opting for a loan against shares instead of selling, you avoid triggering these tax events. This can result in substantial tax savings, particularly for investors holding large or long-term portfolios.

3. Competitive loan against shares interest rate

The loan against shares interest rate is generally lower than the interest rate on unsecured personal loans or credit card debt. In 2025, most lenders offer loans against shares at:

• 8.5 percent to 11.5 percent per annum, depending on the borrower’s profile and quality of shares pledged
  
• Some lenders offer overdraft facilities where interest is charged only on the utilised amount
  

Since the loan is secured against marketable securities, the lender faces lower risk, which is passed on to you in the form of better rates and flexible repayment terms. This makes it a more economical option compared to selling shares and re-entering the market later at a higher cost.

4. Quick processing with minimal documentation

Applying for a loan against shares is relatively simple and convenient, especially if you already hold your shares in a demat account with a recognised depository like NSDL or CDSL.

Typical process and benefits include:

• Online application and lien creation through linked platforms
  
• Minimal documentation (KYC, demat statement, bank details)
  
• Loan approval and disbursal within 24 to 48 hours in most cases
  
• No need to provide income proof or credit score for basic loans
  

This is particularly useful during emergencies, where selling shares could take longer or incur timing losses due to market dips.

5. Flexibility in repayment and continued financial control

Lenders offer multiple repayment options for loans against shares, allowing you to match your repayment structure with your cash flow. Common features include:

• Fixed monthly EMIs
  
• Interest-only payments with bullet principal repayment
  
• Overdraft facility with interest on used amount only
  

In addition, many lenders do not charge foreclosure or prepayment penalties, giving you the flexibility to repay early without additional costs.

This kind of control is not available once you sell your shares—you lose both the asset and any opportunity to benefit from its future performance. With a loan, you can use the funds as needed and repay at your convenience.

When should you choose a loan against shares?

While a loan against shares offers clear benefits, it may not suit every situation. It is best suited when:

• You require short-term liquidity for a defined purpose such as medical expenses, education, or business needs
  
• Your portfolio consists of stable, listed shares with sufficient market value
  
• You have a repayment plan in place and expect future income or asset realisation
  
• You prefer not to disrupt long-term investment plans or book taxable capital gains
  

However, investors should also be aware of market volatility. If the share price falls significantly during the loan tenure, the lender may issue a margin call, requiring you to pledge more shares or repay a portion of the loan. Failure to do so may result in liquidation of the pledged shares.

Loan eligibility and other considerations

To apply for a loan against shares, the following loan against shares eligibility criteria usually apply:

• You must be an Indian resident (individual or HUF)
  
• You should hold shares in dematerialised form
  
• The shares should belong to the lender’s approved list of securities
  
• You should be at least 18 years of age
  

Lenders may also specify:

• Minimum loan amount, typically Rs. 25,000 to Rs. 50,000
  
• Maximum loan value based on a loan-to-value ratio (LTV), often 50 to 60 percent of current market value
  

Documents required typically include:

• PAN card and address proof
  
• Demat account statement
  
• Signed loan application form
  
• Bank account details
  

Processing is streamlined, and many leading banks and NBFCs offer dedicated portals for applying.

Conclusion

A loan against shares offers a valuable alternative to selling your equity investments, especially when you require temporary financial support. With lower interest rates, minimal documentation, and the ability to retain future gains, it strikes a balance between meeting immediate needs and preserving long-term wealth.

Understanding the loan against shares interest rate, margin rules, and your own repayment capacity is critical before proceeding. When used responsibly, this facility can serve as a cost-efficient and flexible solution to unlock the value of your portfolio without giving up ownership.