Investors tend to view bonds—government or corporate—more like pillars of stability. They pay out regular interest (coupon) and refund the principal at maturity, returning steady income and portfolio diversification. But with sudden expenses, having to sell the bonds means forgoing future income. That’s when a Loan Against Bonds (LAB) proves an intelligent, strategic step. This leveraged finance lets bondholders access liquidity without giving up ownership or income.
WHAT’S A LOAN AGAINST BONDS?
A Loan Against Bonds is a secured credit facility in which your existing bonds serve as collateral. By offering bonds in your demat account, you get a loan—usually 50–90% of the market value of the bond—while still earning interest and profiting from appreciation. You continue to be the owner of the bond.
CHARACTERISTICS THAT MAKE LAB COMPELLING
- Liquidity Without Liquefaction: Obtain funds without having to sell your bonds.
- Interest Rolls On: Coupon payments on bonds continue flowing despite the lender’s lien.
- Flexible Use of Funds: From operating capital to emergency funds—use it as you need.
- Collateral Swap: If bond prices decline, lenders might permit substitution with bonds of comparable value.
ADVANTAGES OVER OTHER FINANCING OPTIONS
- Feature Benefit: High Loan-to-Value (LTV) Lenders can provide up to 80–90% LTV based on bond type.
- Lower Interest Rates: Secured nature holds interest lower than that of personal loans.
- Quick Disbursal: Money can be credited to your account within 24–48 hours.
- Digital & Paperless Processing: Most NBFCs/banks have complete online applications and e-signing.
- No Early Repayment Penalties: Most lenders don’t have prepayment charges.
ELIGIBILITY & DOCUMENTATION
Who is eligible?
- Indian citizen, age 18 years or more
- Bonds in dematerialized form
- Good credit history (works in favor of better terms)
Typically needed documents:
- PAN, Aadhaar/passport/voter ID
Address proof
- Proof of income (salary slips, ITR, bank statements)
- Demat statement or bond certificates
HOW TO APPLY?
Offline Process
- Go to a bank/NBFC branch
- Fill out the loan application form
- Submit KYC and bond evidence
- Sign the pledge agreement
- Get funds after valuation and sanction
Online Route
- Fill out the form on the lender’s portal/app
- Upload documents and e-sign
- Lien mark bonds in demat
- Funds get disbursed—usually within a day
RBI REGULATIONS & LENDER GUIDELINES
As per RBI guidelines for Loan Against Securities (LAS):
- Scheduled banks and NBFCs are eligible lenders.
- Bonds should be demat and listed (or lender-approved).
Typical LTV ceilings:
- Debt securities up to 50–70%.
- High-quality bonds/funds up to 90%.
CHARGES & FEES YOU SHOULD PAY ATTENTION TO
From players such as Bajaj Finserv, representative charges are:
- Interest: ~8–15% pa
- Processing fee: up to ~4.7% (loan of > ₹5 crore)
- Prepayment: Mostly exempted, with certain charges on high-value loans
- Miscellaneous: maintenance, DP, brokerage, pledge invocation charges
INTELLIGENT FACTORS TO CONSIDER BEFORE BORROWING
- Monitor interest and LTV fluctuations: Dipping bond prices may trigger margin calls.
- Compare lenders extensively: Don’t look just at interest—compare fees, LTV threshold, flexibility.
- Match tenor to requirement: Use overdraft for short term; term loan for longer terms.
- Repay strategy: Try not to force the sale of bonds in turbulent times.
WHEN DOES LAB MAKE SENSE?
- To finance urgent needs—medical or business requirements
- To grab time-critical investment opportunities
- To keep your long-term investment plan intact
BOTTOM LINE
A Loan Against Bonds is a low-cost, low-hassle, and convenient method of raising liquidity as your investments keep on earning for you. Whether you use RBI bonds or corporate securities, LAB provides the facility to release capital from your portfolio without discomposure. Just make sure to check terms well and know the details of LTV, charges, and lender guidelines.