Bonds are government and corporate debt securities used to obtain capital. When investors buy bonds, they get periodic interest payments and return of the bond’s face value at maturity. Although bonds offer constant income and diversification in a portfolio, investors sometimes need liquidity before their bonds mature. That is where a loan against bonds comes in handy.
A loan against bonds enables investors to put up their holding of bonds as collateral for a loan without selling them. That way, they are still owners, earn interest, and enjoy any appreciation in price while being able to access cash.
CHARACTERISTICS OF LOAN AGAINST BONDS
- Liquidity Without Liquidation: Investors are able to realize their bond investment without selling them.
- Accumulation of Interest Continues: Bonds still earn interest even when used as collateral.
- Flexible Utilization of Funds: Borrowers are allowed to utilize the amount of the loan for other investment or financial purposes.
ADVANTAGES OF LOAN AGAINST BONDS
- Hybrid Term Facility of Loan: Various lenders provide a combination of repayment options depending upon borrower requirements.
- No Prepayment Charges: A few lenders don’t levy fees for prepaid loans.
- Paperless Processing Facility: Most financial institutions provide digital processing of applications and approvals.
- Instant Access to Funds: Loan sanctions are faster than other secured loans.
- Retained Bond Ownership: Shareholders keep receiving interest payments and possible price gains.
- Collateral Swap: Should bond prices change, lenders can swap bonds with similar-value securities.
- High Loan-to-Value Ratio: Borrowers can borrow up to 50-70% of the market value of the bond.
HOW TO APPLY?
Offline Application
- Go to the branch nearest to you.
- Complete the loan application form.
- Provide bond certificates and the necessary documents.
- Upon confirmation, sign the loan agreement and get the disbursed amount.
Online Application
- Go to the lender’s website and fill in the application form.
- Upload required documents for verification.
- After approval, fill in the loan agreement online.
- Transfer bonds to the lender’s demat account through online banking.
ELIGIBILITY CRITERIA
- The applicant has to be an Indian citizen.
- Bonds should be in a demat account.
- The applicant has to be above 18 years of age.
DOCUMENTS REQUIRED
- PAN Card
- Identity Proof
- Address Proof
- Signature Proof
- Income Proof
- Bond Certificates
CONCLUSION
A loan against bonds enables investors to use their holdings of bonds to raise liquidity while keeping ownership and interest income intact. Whether one takes a loan against RBI bonds or other corporate/government bonds, comparing interest rates and lender terms is a must before reaching a decision. This approach allows for financial flexibility while maintaining long-term investment returns.