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Loan against Shares
June 07 , 2012

Loan Against Shares (LAS) is when you borrow money by keeping your shares as collateral. In such a case, the shares continue to remain in your demat account, but you cannot sell them till you have cleared the loan. Typically such pledged shares are marked out separately in your demat statement.

Since share prices are volatile and can fall, it is possible that the value of the shares you have pledged become too close to the loan you have taken. In such a case, your lender would ask you to put up more shares or cash to compensate. If you fail, he can sell your shares before they fall below the value of the loan. In this way, the interests of the lender are protected.

LAS is sometimes used by promoters of companies who need funds for personal use. They usually have a large shareholding in their own company, but are averse to outright sale of the shares for fear of losing management control. So they pledge their shares and borrow money.

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