Financial emergencies can arise at any time, and in such situations, many individuals prefer not to disturb their long-term investments. Instead of liquidating assets, an increasingly popular solution is to opt for a secured loan against existing investments. Among the common options are a loan against securities and a loan against fixed deposit. Both serve as reliable sources of liquidity, but their structure, benefits, and suitability can differ depending on your investment profile and financial goals.
This article explores both types of loans in detail, compares them across multiple factors, and helps you decide which one might be more appropriate for your needs.
What is a loan against securities?
A loan against securities is a secured borrowing facility where you pledge market-linked instruments such as shares, mutual fund units, bonds, government securities, or ETFs to avail of funds. These investments act as collateral, and based on their current market value, the lender sanctions a loan amount. You retain ownership of the securities throughout the tenure, but a lien is marked to restrict their sale until the loan is repaid.
The value of the loan depends on the type of security and the lender’s loan-to-value ratio. For instance, loans against equity shares generally have an LTV ratio of up to fifty percent, while debt mutual funds or bonds can offer up to seventy to eighty percent of the investment value as loan.
These loans are ideal for individuals who have built a diversified portfolio and wish to raise funds quickly without liquidating their holdings.
What is a loan against fixed deposit?
A loan against fixed deposit is one of the most straightforward secured loan options. Here, you pledge your fixed deposit as collateral and receive a loan amount, usually up to ninety to ninety-five percent of the deposit’s value. Since fixed deposits are low-risk instruments with guaranteed returns, lenders are more comfortable offering a high loan-to-value ratio with attractive terms.
This loan facility is particularly beneficial for conservative investors or senior citizens who do not want to break their FD prematurely, which would otherwise result in penalties and loss of interest. The interest charged on such loans is generally one to two percent higher than the interest earned on the deposit itself.
You continue to earn interest on your FD during the loan period, and your principal remains untouched unless the loan is not repaid as per terms.
How much can you borrow?
The amount you can borrow depends on the collateral you offer and the type of instrument pledged. In the case of a loan against securities, the amount varies due to the volatility and risk profile of the asset. Equity shares are considered more volatile, so lenders offer a lower LTV ratio—typically up to fifty percent. In contrast, debt mutual funds or government bonds may fetch an LTV ratio of up to eighty percent.
For a loan against fixed deposit, lenders usually offer up to ninety to ninety-five percent of the deposit value. This is because fixed deposits are considered extremely low risk. The loan amount is directly linked to your deposit size, and it is often easier to access for a wide range of customers.
Interest rates and repayment
Interest rates on loans against securities can vary significantly based on the type of security pledged, the loan amount, and the borrower’s credit profile. Typically, the interest ranges from nine to twelve percent per annum. In some cases, lenders offer overdraft facilities where you are charged interest only on the amount you use.
In comparison, a loan against fixed deposit comes with lower interest rates. The lender usually charges one to two percent above the FD’s interest rate. For instance, if your fixed deposit earns six and a half percent interest annually, the loan may come at an interest rate of seven and a half to eight and a half percent.
Repayment options for both facilities include monthly interest payments with bullet repayment of the principal or regular EMIs. Loan tenures typically match the maturity period of the FD or can go up to twelve months in the case of securities.
Documentation and disbursal process
The documentation process for both types of loans is relatively simple. For a loan against fixed deposit, the process is nearly instant, especially if the FD is held with the same bank. You only need to submit an application form, identification documents, and execute a loan agreement. Disbursal is usually completed within a few hours.
In the case of a loan against securities, the process involves verification of securities, lien marking through registrars like NSDL, CDSL, CAMS, or KFintech, and agreement signing. Fintech platforms now enable a fully digital process, which can complete disbursal within twenty-four to forty-eight hours.
Key differences between loan against securities and fixed deposits
| Feature | Loan Against Securities | Loan Against Fixed Deposit |
| Type of collateral | Shares, mutual funds, bonds, ETFs | Fixed deposit |
| Loan-to-value ratio | 50–80 percent | 90–95 percent |
| Interest rate | 9 to 12 percent | 1–2 percent above FD interest rate |
| Risk to lender | Higher due to market volatility | Minimal |
| Ownership of investment | Retained during loan period | Retained during loan period |
| Default recovery mechanism | Liquidation of pledged securities | Premature withdrawal of FD |
| Popular among | Market-savvy investors | Traditional and senior investors |
| Tenure | Up to 12 months | Matches FD tenure or as agreed |
| Disbursal time | 24 to 48 hours | Immediate to a few hours |
Which one should you choose?
Choosing between a loan against securities and a loan against fixed deposit depends on your investor profile, urgency of funds, and risk appetite.
If you are a market-savvy investor with a diversified portfolio in shares, mutual funds, or bonds, a loan against securities may offer flexibility and competitive borrowing options without disturbing your long-term asset allocation. You continue to benefit from capital appreciation and stay invested.
However, if you are risk-averse or have idle fixed deposits earning interest, taking a loan against fixed deposit is a safer and more predictable option. It is also ideal for those who need funds immediately and want to avoid the paperwork and market risk associated with securities.
Factors to consider before borrowing
Regardless of which option you choose, it is important to evaluate your repayment capacity. Ensure you do not over-leverage your investments, as failing to repay may result in the liquidation of assets or premature closure of your fixed deposit. Understand all applicable fees, including processing charges, foreclosure penalties, and margin calls.
You should also assess the impact of market volatility. For loans against securities, a fall in market value may trigger a margin call from the lender, requiring you to repay part of the loan or pledge additional assets. Such a risk does not exist in fixed deposit-based loans.
Conclusion
Both loan against securities and loan against fixed deposit offer smart alternatives to traditional borrowing methods. They allow you to unlock the value of your existing assets without giving them up. While loans against securities are suitable for investors comfortable with market risk and seeking flexibility, loans against fixed deposits offer lower interest rates and near-instant access to funds for conservative savers.
Ultimately, your decision should be based on your financial goals, urgency of need, and the nature of your existing investments. When used responsibly, either of these secured loan options can help you meet short-term needs while keeping your long-term financial plans intact.
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