Ensuring stocks is a common way for investors to release their stock value without having to sell their stock value. It allows you to borrow money by using stocks as collateral. While this may seem like a convenient option, ensuring stocks involve certain risks and responsibilities that each investor should carefully evaluate.

This article explores what it really means to ensure your stock, how the process works, and the attitude you should be cautious about before making a decision.

Understand the concept of shared commitment

When you guarantee stocks, you Essentially, they use it as a lender’s security – usually a bank or non-bank financial company (NBFC) – Change loan. You are still the owner of the stock, but if you default on repayments or the stock’s value drops significantly and you cannot meet margin requirements, the lender has the right to sell them.

This loan Usually used Meet short-term financial needs, expand business or manage cash flow.
since It is Loans with mortgages may have relatively low interest rates, lower than unsecured loans
like Personal loan.

Commitment Process: How to Work

The process of securing stocks usually begins with an agreement between you and the lender.
This is Simplified failure:

1. Applications and Documentation: You submit your loan application and your share details. The lender evaluates the value and liquidity of the stock.
2. Commitment order: You usually guide your deposit participants (DPs) through your Demat account to create commitments that benefit the lender.
3. Loan Expenditure: Once the shares
   Commitment to success and signed the agreement to loan
   Being paid.
4. Ongoing surveillance: The lender tracks the stock price and may require additional collateral (margin call) if the stock price drops sharply.
5. Loan Close: Full repayment, the lender issued a promise, and the stock is again
   completely Under your control.

Loan Value (LTV) Ratio: What does it mean to you

The largest Important The term in this process is the loan value (LTV) ratio.
this Determine how much loan you can get to your pledge stock. For example, if the LTV is 50%, and your equity value is Rs 1 million, you may be eligible for a loan5
Hundreds of thousands.

This percentage varies by creditor and share types.
Generally, stocks of blue chip companies or large companies are more likely to get higher LTV due to their stability and liquidity.

Key precautions before ensuring your stock

Ensuring stocks is not without complexity. Here are some key things to keep in mind before continuing:

1. Market fluctuations and margin calls

this maximum The risk of ensuring stocks is fluctuations in market value. If your value
ensure If the stock is below a certain threshold, the lender may issue a margin call asking you to repay a portion of the loan or guarantee additional stock. If you do not meet this requirement, the lender can sell your stock without further notice.

2. No ownership of control

Even though you are still the legal owner of the stock, your control Restricted During the commitment period. you
cannot Sell or transfer stocks until loan
Completely repaid and guarantee Deleted.

3. Impact on credit scores

one
Loans for stocks Will be reflected in your credit report. Any default repayment or delay can negatively affect your credit score.
It is Important Treat any other financial obligations like and ensure timely payments.

4. Limited use of dividends

In many cases, dividends are announced No credit Give it to you during the commitment period. Some lenders can adjust the dividend amount based on outstanding loans.
this Reduce income potential from your investment.

5. TOLL

The lender usually charges processing fees, annual maintenance fees, and interest on the borrowed amount.
make sure Understand the complete fee structure
Your signature protocol. Sometimes, the total cost may be higher than expected.

Promise may be useful

Although caution is necessary, using stocks strategically can be a useful tool. This may make sense in the following cases:

• You need funds urgently, but No Want to liquidate your long-term investment.
• You are confident in repayment ability and stock stability.
• You need short-term liquidity for business or personal needs and want to avoid higher interest choices.

Ensure stock alternatives

Before deciding, It is Also worth exploring alternatives:

• Personal loans:if you
  No If you want to venture into the investment, you can consider personal loans at higher interest rates.
• Clearing a part of your portfolio: Sometimes, a portion of the shares are sold, especially those that are not core shares.
  possible Less risk.
• Loans for other assets: Loans for fixed deposits, mutual funds or insurance policies may offer different risk compromises.

The final thought

Ensuring stocks is not bad in nature, but it is a financial strategy that requires responsibility and awareness.
It provides a way to avoid access to funds open Your investment, but also
bring If things happen, the risk of losing shares
Wrong.

Market conditions, repayment capabilities and long-term finance Target It should all
yes Shooting Consider. Before making a decision, assess whether you need immediate liquidity to exceed the risk of losing these shares.

if you Unsure, please consult a financial advisor who can guide you based on your financial situation.
Ultimately, ensuring stocks should be a carefully considered choice, not an impulsive decision
moment of crisis.