Loan Against Securities Meaning

Banks and financial institutions keep coming with various ways to fulfill the monetary requirements
of each and every individual as per their credit worthiness and paying capacity. One step in this
direction was the introduction of gold loan. Another one has been Loan against Securities,
popularly referred to as LAS. Under Loan against Securities, loan is advanced to a customer
against pledge of securities or simply put loan against insurance policy, mutual funds, NSC and
other securities. The list of approved securities against which LAS can be advanced varies from
bank to bank, but primarily the following are considered to be approved securities against which
LAS could be given.
1.
2.

Non-Convertible Debentures
Mutual Fund Units

3.
4.
5.
6.
7.

NABARD Bonds
Demat Shares
UTI Bonds
NSC/KVP (Accepted only in Demat form)
Insurance Policies

LAS helps you to get loan against the securities that you have, for the time being, merely pledged
without selling them off in haste. An overdraft facility is advanced to you by bank or financial
institution when you pledge your securities. The value of the overdraft limit that is advanced to you
is determined on the basis of the securities that are pledged by you.
For smooth transactions, a current account is opened in your name and it is at your discretion how
and when to withdraw and use the money. The rate of interest is calculated only on the amount
withdrawn by you and only for the period of utilization.
The advantageous part of pledging your securities is one that you are able to get steady cash
easily at the time you need it most and secondly you would not be devoid of the benefits as a
shareholder. This means that you can enjoy your rights of receiving dividends and bonuses along
with gaining from the price movements in the shares for which you have availed the loan from the
bank.
In order to meet your short-term financial needs, Loan against Securities offers a good choice as
you do not have to sell your stocks in haste. Moreover, the interest rate at which you get LAS is
lesser as compared to a personal loan.
Features of Loan Against Securities
1. Secured Loan - Loan against securities is a secured loan as your bonds, shares, debentures or
mutual funds are kept as collateral security when this loan is advanced to you.
2. Tenure - The tenure of loan against securities is generally one year. You may also get it renewed
as per your requirement.

3. Rate of Interest - Generally interest rates at which loan against securities is advanced varies from
12% - 15% p.a but that may also vary from bank to bank.
4. Processing Fees - Banks and financial institutions usually charge approximately 2 % as
processing fees.
5. Loan Amount - The loan amount for which you may be eligible depends upon the type of security
that you are offering. For example, in case you are offering equity shares then the amount that you
will be eligible for would be 50% of the value of such shares.
6. Prepayment Charges - At any point of time if you wish to prepay your loan against securities then
you can do so without giving it a second thought as there are no prepayment charges attached to
this loan.
7. Age Any one who falls within 18years - 65years of age can apply for availing loan against
securities.
Documents Required for Loan against Securities Generally, following documents are
required by banks and financial institutions before they advance you loan against securities but the
required documents may vary from bank to bank.
A. For Salaried Person
1. Pan Card
2. Identity Proof
3. Photograph
4. Address Proof
5. Bank Statements (Latest 6 Months)
6. Cancelled Cheque
7. Demat Account Statement (Securities need to be in electronic form)
8. Income Proof
B. For Self-Employed Person
1. Pan Card
2. Identity Proof
3. Photograph
4. Address Proof
5. Bank Statements (Latest 6 Months)
6. Cancelled Cheque
7. Demat Account Statement (Securities need to be in electronic form)
8. Income Proof along with Profit and Loss Account, Balance Sheet etc.
9. Office Address Proof
10. Business Existence Proof

1.

Non-Convertible Debentures

Definition: Debentures are long-term financial instruments which acknowledge a debt obligation towards the
issuer. Some debentures have a feature of convertibility into shares after a certain point of time at the discretion
of the owner. The debentures which can't be converted into shares or equities are called non-convertible
debentures (or NCDs).
Description: Non-convertible debentures are used as tools to raise long-term funds by companies through a
public issue. To compensate for this drawback of non-convertibility, lenders are usually given a higher rate of
return compared to convertible debentures.
Besides, NCDs offer various other benefits to the owner such as high liquidity through stock market listing, tax
exemptions at source and safety since they can be issued by companies which have a good credit rating as
specified in the norms laid down by RBI for the issue of NCDs. In India, usually these have to be issued of a
minimum maturity of 90 days.

2.

Mutual Fund Units

A mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the per-share
dollar amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any
liabilities, by the number of fund shares outstanding.
In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the
securities in the fund's portfolio. All mutual funds' buy and sell orders are processed at the NAV of the trade
date. However, investors must wait until the following day to get the trade price.
Mutual funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best
gauge of mutual fund performance, which is best measured by annual total return.

The Indian mutual fund industry, though still small in comparison to the size of the Indian economy, offers Indian,
and in some cases global investors, both big and small, an avenue to invest safely and securely, at a reduced cost, in
a diverse range of securities, spread across a wide range of industries and sectors.
History of Mutual Funds in India == The first Indian mutual fund was set up in 1963, when the Government of India
created the Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market and sold
a range of mutual funds through a network of financial intermediaries. At the end of 1988 UTI had Rs. 6,700 crores
of assets under management.[1] In 1987, the Government of India permitted public sector banks and the Life
Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) to enter the mutual fund
industry. The State Bank of India's SBI Mutual Fund was the first such mutual fund to be established in 1987. Canara
Bank set up Canbank Mutual Fund shortly after in the same year, followed by funds from Punjab National Bank and
Indian Bank in 1989, Bank of India in 1990 and Bank of Baroda in 1992. The LIC established its mutual fund in 1989
and the GIC in 1990. At the end of 1993, the mutual fund industry had assets under management of Rs. 47,004
crores.[2] in 1993, with the creation of SEBI and better regulation, transparency and liberalisation of capital markets
(which included the creation of the NSE and the NSDL), the private sector was allowed to enter the mutual fund
industry. Kothari Pioneer Mutual Fund (now merged into Franklin Templeton Investments) was the first private
sector mutual fund to be registered in July 1993. In the following years, international giants in the industry as well as
Indian corporates and industrial families setting up their own mutual funds, purchasing existing fund companies or
merging with them. At the end of January 2003, there were 33 mutual funds with assets totalling Rs. 1,21,805 crores.

The UTI still led the pack with Rs. 44,541 crores worth of assets. In February 2003, faced with financial
mismanagement, opaque bookkeeping and huge, growing liabilities at the UTI, the Government of India suspended
redemptions, guaranteed the assets, unveiled a comprehensive suite of reforms and repealed the Unit Trust of India
Act 1963.[3] The UTI was split into two parts.[4] One was called the "Specified Undertaking of the Unit Trust of India"
with Rs. 29,835 crores of assets largely belonging to the UTI's Unit 64 fund. The fund was rumoured to own property,
commodities and a whole range of unconventional and often undocumented assets. The fund would attract millions
of investors by promising generous annual dividends that were far in excess of the returns on its actual portfolio.[5]
This Specified Undertaking of Unit Trust of India, functioned under an administrator appointed by Government of
India, outside of SEBI's purview, until it was eventually liquidated in 2008. The Government asked the SBI, PNB, BOB
and LIC to step in as sponsors of the second part, now called UTI Mutual Fund (in addition to being sponsors of their
own mutual funds) under SEBI's regulation. As of 30 June 2013, the Indian mutual fund industry manages assets
worth approximately Rs.847,000 crores
Net asset value (NAV) is the value of an entity's assets minus the value of its liabilities, often in relation to open-end
or mutual funds, since shares of such funds registered with the U.S. Securities and Exchange Commission are
redeemed at their net asset value. This may also be the same as the book value or the equity value of a business. Net
asset value may represent the value of the total equity, or it may be divided by the number of shares outstanding
held by investors, thereby representing the net asset value per share.[1]

Net asset value and other accounting and recordkeeping activities are the result of the process of fund accounting
(also known as securities accounting, investment accounting, and portfolio accounting). Fund accounting systems
are sophisticated computerized systems used to account for investor capital flows in and out of a fund, purchases
and sales of investments and related investment income, gains, losses and operating expenses of the fund. The
fund's investments and other assets are valued regularly; daily, weekly, or monthly, depending on the fund and
associated regulatory or sponsor requirements. There is no universal method or basis of valuing assets and liabilities
for the purposes of calculating the net asset value used throughout the world, and the criteria used for the valuation
will depend upon the circumstances, the purposes of the valuation and any regulatory and/or accounting principles
that may apply. For example, for U.S.-registered open-ended funds, investments are commonly valued each day the
New York Stock Exchange is open, using closing prices (meant to represent fair value),[2] typically 4:00 p.m. Eastern
Time. For U.S.-registered money market funds, investments are often carried or valued at "amortized cost" as
opposed to market value for expedience and other purposes, provided various requirements are continually met.[3]

At the completion of the valuation process and once all other appropriate accounting entries are posted, the
accounting books are "closed" enabling a variety of information to be calculated and produced including the net
asset value per share.

3.

NABARD Bonds

Functions
A. Mobilisation of Resources

Resources are mobilised to meet fund requirements through a mix of instruments of various types and tenure, viz.
Bonds, Certificate of Deposits, Commercial Papers, Term Deposits, Corporate Borrowings, Term Money Borrowings,
RIDF deposits, STCRC/STRRB deposits etc.

Of the bond issuances, three bonds were issued to retail investors, viz. Capital Gains Bonds, NABARD Rural Bonds
and Bhavishya Nirman Bonds. These issues are now not open for fresh investments.
Bonds, Certificate of Deposits and Commercial Papers are issued after obtaining ratings from one of the approved
credit rating agencies viz., CRISIL, ICRA or CARE. Bhavishya Nirman Bonds, which are zero coupon bonds with a
tenure of 10 years, were rated by at least two credit rating agencies. NABARDs issuances received AAA or
equivalent (the highest) ratings from the credit rating agencies.
The bonds issued to institutional investors are listed on NSE while Bhavishya Nirman Bonds are listed on BSE.
The servicing of retail instruments (viz., Capital Gains Bonds, NABARD Rural Bonds and Bhavishya Nirman Bonds) is
done by M/s.UTI Infrastructure Technology And Services Ltd., who are Registrars and Transfer Agents. The Corporate
Bonds are serviced by M/s Datamatics Financial Services Ltd.
IDBI Trusteeship Services Ltd. are the Trustees for Corporate Bonds and Bhavishya Nirman Bonds.
B. Remittance of Funds

The remittance of funds is made to Regional Offices and client institutions (Commercial Banks, Regional Rural Banks,
State Cooperative Agriculture and Rural Development Banks, State Cooperative Banks, District Central Cooperative
Banks) and State Governments directly or through Regional Offices.
C. Treasury Operations

The Treasury operations are carried out with a view to ensure availability of adequate liquid resources for business
operations and administrative functions of the Bank.
The Treasury also invests the Banks temporary surpluses and other funds in various instruments in accordance with
the provisions of NABARD Act, RBI guidelines and directions given by the Board of Directors and the Investment
Committee. These instruments include Treasury Bills (including Cash Management Bills), Money Market Mutual
Funds, Commercial Papers , Certificates of Deposits, Collateralised Borrowing and Lending Obligation (CBLO),
Government Securities (Central Government and State Government), Deposits with Banks, Corporate Bonds (NCDs),
Equity Shares, other products such as Bills Rediscounting, Units of Venture Capital Funds, Reverse Repo and any
other instrument, approved by RBI as eligible instrument for Financial Institutions like NABARD to invest. The
investments are made both in primary and secondary markets.

Financial Products

Investment in Venture Capital Funds (VCF)

Objective
To encourage entrepreneurship, innovation, growth and investment in agriculture and rural development.
Eligibility
The Venture Capital Fund should be SEBI registered and should furnish copy of the Certificate of Registration with
SEBI. It should comply with all applicable Rules and Regulation for operation of the fund.

VCF should be agriculture, agro-processing and rural area focused.

At least 200% of NABARD's commitment shall be invested by the VCF in the projects that help agriculture and rural
development.
The VCF should be in venture capital activities for at least five years in India and has shown good performance in
earlier funds.
For VCFs with less than five years experience, the promoter organisation should have been in venture capital
business for at least 10 years and demonstrated good performance.
In case of start up VCFs, the selection will be based on (a) size of VCF (b) profile of other investors (c) track record of
promoters and their experience in the field (d) commitment already received by the VCF from contributors other
than the sponsors, which should not be less than 25% of proposed corpus, before approaching NABARD.
Checklist for proposal submission
SEBI Registration Certificate
Private Placement Memorandum
Past performance details - IRR generated for exits and in multiples of investment
Firm commitments received
Deals in pipeline

4.

Demat Shares