Why prefer LAS
Taking a Loan Against Shares and Mutual Funds (LAS) in India can provide individuals with access to liquidity without having to liquidate their investment holdings. This type of loan is secured by shares or mutual fund units, making it a popular option for various financial needs. Here are some common reasons why individuals opt for LAS in India:
1. Liquidity Needs:
- One of the primary reasons to take an LAS is to meet short-term liquidity needs. It allows individuals to access cash without selling their shares or mutual fund units, which may be part of their long-term investment strategy.
2. Emergency Expenses:
- LAS can be used to cover unexpected or emergency expenses, such as medical bills, home repairs, or urgent financial obligations, when immediate cash is required.
3. Capital for Business Expansion:
- Entrepreneurs and business owners can use LAS to raise capital for business expansion, working capital needs, or to seize growth opportunities without disrupting their investment portfolios.
4. Debt Consolidation:
- Individuals may use LAS to consolidate high-interest debts, such as credit card debt or personal loans, into a single loan with a potentially lower interest rate.
5. Investment in a New Business or Venture:
- LAS can provide the initial capital required to invest in a new business or startup, allowing individuals to leverage their existing investment assets.
6. Investment in Real Estate:
- Some individuals use LAS to make a down payment on a property or real estate investment, taking advantage of favorable real estate opportunities.
7. Education Expenses:
- LAS can be used to fund education expenses, such as tuition fees or educational loans for oneself or family members.
8. Tax Planning:
- Borrowing against shares and mutual funds can offer tax benefits, as the interest paid on the loan may be tax-deductible, depending on the purpose of the loan.
9. Diversification of Investments:
- Borrowers may use LAS to diversify their investment portfolio or to invest in different asset classes while retaining their existing holdings.
10. Retaining Ownership and Dividends: - When individuals take an LAS, they retain ownership of their shares or mutual fund units. They can continue to receive dividends, capital appreciation, or interest income generated by these investments.
11. Timing the Market: - Borrowers might opt for LAS when they believe that the market conditions for their shares or mutual funds are not favorable for selling, but they need immediate cash.
12. Low-Interest Rates: - LAS often offers lower interest rates compared to unsecured loans, making it an attractive option for borrowing.
13. Minimal Documentation: - LAS typically requires less documentation and processing time compared to other types of loans, such as personal loans or home loans.
It's important to note that LAS involves risks, including the possibility of margin calls if the value of the collateral falls significantly. Therefore, individuals considering LAS should carefully assess their financial situation, loan terms, and risk tolerance.