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What is Loan Against Shares and Securities?

A loan against securities or loan against shares is a loan facility given to customers in which the loan bearer needs to pledge its security as collateral to avail of a loan. It has multiple types such as loans against insurance, loans against MFs, loans against National Savings Certificates or more.

A loan against securities is popular among investors as it is an easy way to get a loan without compromising your security. Also, it allows you to receive a loan of up to 80% on multiple financial instruments.

This is a unique kind of service that enables the bearer to take advantage of dual service viz perpetuating ownership on your investment along with receiving their benefits.

Types of Collateral for Loan Against Securities

• DEMAT Account and Shares
• Insurance Policies
• NCD (Non-Convertible Debentures)
• LIC Policies and UTI Bond
• NABARD Bonds
• Mutual Fund Units
• National Savings Certificate
• Kisan Vikas Patra and more.

How Does Loan Against Security Work?

A loan against security is generally offered as an overdraft facility in which you need to pay interest only on the loan amount you use and the period you use for it. This can be done immediately after the securities you offer for the collateral.

Features of Loan Against Shares:

A loan against shares is considered one of the secured forms of loans that can be given against the securities present in your account. The following are the features of loans against shares:

• The loan amount can be given up to 80% of the collateral value.
• The interest rate of loans against shares lies between 9% to 12%.
• The normal tenure of a loan against shares is 1 year but you can extend it for further years.
• Loan against shares is eligible for Indian residents, NRIs, Hindu Undivided Families, Sole Proprietorship, Public and Private funds and more.
• The desired age for the borrower lies between 18 to 65 years.
• Charges for loans against shares are initial processing fees, Annual Maintenance Charges (AMC), stamp duty and more.

Advantages of Using Loans Against Securities

• A loan against shares offers you to remain the owner of your securities.
• It also gives you the facility to receive bonuses and dividends on your investments.
• You can get a high loan value which is up to 80% of the collateral deposited.
• A loan against security requires minimum paperwork, hence you get an instant loan without much.
• It also provides instant liquidity,, which in turn improves investment potential.
• Loan against security allows you a flexible repayment facility along with penalty-free foreclosure.

Eligibility Criteria for Applying for Loans Against Securities

Following are the eligibility criteria for Loan Against Securities

• Residents should be Indian, NRI, or HUF.
• The minimum age to apply for LAS is 21 years.
• You should either be salaried or a self-employed individual.
• The securities you pledge as collateral should be approved by the bank.

From Where Could You Take A Loan Against Shares?

Banks and NBFCs have the authority to sanction loans against securities. Here, we will help you to identify your preferred creditor:

Area Bank NBFC Margin Requirement50% against equity/equity-oriented mutual funds and lenders’ discretion on debt/ debt-based mutual funds.50% against equity/equity-oriented mutual funds and lenders’ discretion on debt/ debt based mutual funds. Capitalization on Loan Amount 10 Lakh against physical shares, 20 Lakh against Demat shares No Cap on the amount of Loan Loan Processing Time consuming process Easy and Fast Process.

It is preferred to take a loan from NBFC as compared to a bank as it is the safe, fast yet most effective way to avail of a loan without much hassle.

Purposes of Taking Loan from Other Securities:

There are different purposes for taking a loan against shares which can be mentioned below:

1) Working capital requirement for business:

Many SMEs take loans against securities just to expand their business. With this new loan amount, businesses usually fulfill their daily working capital requirement which in turn enhances their profits and growth.

2) Business Expansion:

This is the most valid reason SMEs take loans against their securities to increase scalability. This will help businesses to work on new products or open new branches in different cities.

3) Investment in Capital Market:

If you want to increase your investment capital and have confidence in your stock picks, then taking out a loan can be a good option for you as getting a loan on your present investment will help you raise future investments as well.

4) Other Personal Usage:

Loans against shares can also be used for personal purposes such as buying a home, a child’s education and marriage, etc.

Parameters for Credit Underwriting

The Bank or NBFC reviews your loan application to check your creditworthiness before giving you a loan. Here are the following parameters:

1) Checking Client’s Profile, Security Provider and more:

Lenders shall check for market reputation and decide the credibility based on the number of years you have been in a business that is known for vintage.

2) Security Analysis:

In security analysis, the creditors take a detailed insight into your financial securities. He determines the proper value of the security, keeping in mind the several fluctuations happening in the market.

3) Financial Statement:

You need to submit all the necessary financial documents such as the cash flow statement, balance sheet, income statement of your business.

FAQ’s

Can I Get a Loan Against My Securities?

Yes, you can. A loan against shares is offered against the securities you want to pledge your holdings as collateral. This will help you to meet new investment and liquidity requirements.

What is the Concept of Loan Against Securities?

Loan against shares enables borrowers to get loans against financial securities such as bonds, stocks, mutual funds, insurance to meet your requirements. You can apply for a loan against shares for your business purposes or in case of urgent financial aid.

How many loans Can I Get Against Securities?

You can get a loan of Rs 20 Lakh against your securities.

Can I Get a Loan on Equity Shares?

Yes. you can get a loan on equity shares where you can pledge shares in the form of equity to avail the benefit of the loan.

Gold is considered a very precious commodity and that’s why investors always prefer Gold as a commodity trading instrument because it acts as a safe investment.

In India, gold holds a strong place in people’s hearts as Indian citizens believe it's an auspicious metal that is being worn on every occasion.  Also, Indian citizens feel gold is a symbol of richness and power.

It has been seen that the importance of gold has significantly increased over the years as investors keep this metal as a hedging tool during market volatility and inflation.

The price of gold keeps on fluctuating due to several factors. It is interesting to know that the US dollar affects the gold price to a greater extent.

Gold puts strong value not only on a state's strong economy, but even on personal investments.

Here are the Factors that affect the Gold Price most:

1) Demand and Supply

Gold prices heavily depend on demand and supply. When there is a huge demand, the price of gold rises or vice versa.

Since Gold is a commodity that is continuously in demand; factors such as demand and supply play an important role in the gold price.

2) Inflation

Whenever inflation is on the rise, the value of currency starts to decrease. As most financial instruments fail to generate better commodity trading returns, gold acts as a strong hedging tool.

3) Government Reserves

The Government of India holds reserves of gold. Here, the price of gold gets affected when RBI purchases more or sells more gold. If you wonder about the gold prices, government reserves could be one of the reasons.

4) Import Duty

Few of us know that India produces less than 1 per cent of global gold production. However, due to the high demand for gold in the country, the government imports a lot of gold from overseas to meet the demand. Hence, import duty plays an important role in increasing gold prices.

How is the Gold Price affected by the US dollar?

In 1944, 44 countries signed the significant Bretton Woods Agreement. The agreement is about international trading, import and export via the US dollar.

A country will sum up its total US dollar reserve at the end of a year. Then, the country goes to the International Monetary Fund (IMF) with that amount of US dollars.

That means the currencies are convertible to gold. Because of this agreement, the USA eventually took profit from all other countries obliged to trade against the US dollar.

How does Inflation affect Gold Prices?

During the pandemic time, Gold prices were increased. Why does this happen?

Because gold is a safe investment, people started investing in gold during the times of COVID to use it as a currency if they were in financial trouble.

Investors hold the gold as compared to currency. As a result, when Inflation in India is high, the gold price also increases and vice versa.

Due to high demand and less supply, gold prices get high, and the people who hold gold during inflation make a lot of profit.

If an RBI imports gold, it does affect the demand and supply of the currency in the country.

To import gold from another country, the RBI needs to print a larger number of notes to pay for it, and due to an excessive amount of currency notes, inflation is caused in the country, and hence the gold price will also be increased.

How does the Festival affect the Gold Price?

In India, many people buy gold in the form of jewellery, and they give gold as a valuable gift to their loved ones.

India depends on the import of gold as our production of gold is less than 1 per cent of the total world production. Because of the high demand in the festival season, we need to import gold from foreign countries.

During festivals like Diwali and Dhanteras, gold prices increase because of high demand and less supply.

India is increasing the production of gold mines to control the gold imports and fulfill our gold requirements.

How does the Indian Currency affect Gold Prices?

The rupee-dollar equation plays a role in Indian gold rates, although it does not impact global gold prices.

India imports gold, and hence if the rupee is getting weaker against the dollar, it directly affects the gold prices.

So, a depreciating rupee may affect the demand for gold in the country. However, the change in rupee-dollar rates has no impact on gold rates denominated in dollars.

Conclusion

As we discussed factors that affect the gold price in India, Gold prices are volatile and considered a safe investment.

Gold is also a portfolio diversifier for stock market trading investors.

When the market falls, people start investing in gold to diversify their portfolios.

Commodity Trading is considered "sensitive" because stock market experts have seen frequent instances of price manipulation in the past 5 years.

Therefore it is suggested to take advice before starting trading in any commodity. Taking help from a reliable stock broking firm will always be helpful as they have strong stock market research reports and an experienced analyst team.

अमेरिका से जारी होने वाले आर्थिक आकड़ो से पिछले सप्ताह बाज़ारो में मिले जुले संकेत रहे, जिससे सोने और चांदी में साप्ताहिक गिरावट दर्ज की गई है। नॉन फॉर्म एम्प्लॉयमेंट चेंज के आंकड़े अप्रैल माह में घट कर 431 हजार रह गए जिससे सोने और चांदी के भाव को सपोर्ट मिला।

जबकि बेरोज़गारी दर में मजबूती देखि गई है। रूस और यूक्रेन के बीच शांति वार्ता में हुई थोड़ी प्रगति से अमेरिकी डॉलर इंडेक्स और बांड यील्ड में निचले स्तरों से सुधार दर्ज किया गया जिसके सोने और चांदी के भाव में दबाव दिखाई दिया।

हालांकि, कीमती धातुओं में कीमते अभी गिरावट के साथ एक सीमित दायरे में चल रही जिससे आगे इनमे उछाल भी देखने को मिल सकता है। जून वायदा सोने के भाव पिछले सप्ताह में 1500 रुपये प्रति दस ग्राम और मई वायदा चांदी के भाव 3200 रुपये प्रति किलो तक टूटने के बाद हिन्दू नव वर्ष की शुरुवात के पहले ही निचले स्तरों से सुधार रहा और सोना पिछले सप्ताह में 1 प्रतिशत और चांदी 2.5 प्रतिशत टूट कर क्रमश 51900 और 67000 के स्तरों पर रहे।

भारतीय सराफा बाज़ारो में शादियों का सीजन शुरू होने के पहले ज्वेलर की मांग बढ़ने की सम्भावना है। निचले स्तरों पर सोने और चांदी की हाजिर मांग आने की सम्भावना से कीमती धातुओं के भाव में उछाल देखने को मिल सकता है।

उधर, ऊर्जा की कीमतों में मजबूती भी सोने और चांदी के भाव को सपोर्ट करती दिख रही है क्योकि पिछले सप्ताह में ओपेक और नॉन ओपेक देशो के समूह की बैठक में  पूर्व आधारित योजना के अनुसार ही कच्चे तेल का उत्पादन बढ़ाया जायेगा जबकि बढ़ी हुई तेल की मांग और रूस पर प्रतिबंध के कारण, तेल और गैस के भाव मजबूत है जिसके कारण मुद्रास्फीति के नियंत्रण में ज्यादा वक्त लगेगा।

तकनीकी विश्लेषण

इस सप्ताह सोने और चांदी के भाव सीमित दायरे में रह सकते है। जून वायदा सोने में 51200 रुपये पर सपोर्ट और 52500 रुपये पर प्रतिरोध है। मई वायदा चांदी में 65000 रुपये पर सपोर्ट और 69000 रुपये पर प्रतिरोध है।

When Indian companies generate profits, they face the decision of how to share that success with their shareholders. Two popular methods are share buybacks and dividends. Let’s explore these concepts and see how they play out with examples from Indian stocks.

What Are Share Buybacks?

Share buybacks occur when a company repurchases its own shares from the market. This reduces the number of shares available, which can lead to an increase in the stock’s price. Buybacks offer flexibility and can signal confidence in a company's future. However, they can also be controversial, as critics argue they might be used to artificially boost share prices.

 Tata Consultancy Services (TCS)

In 2023, TCS announced a buyback program worth ₹18,000 crore. This move aimed to return excess cash to shareholders while demonstrating the company’s confidence in its future growth. By reducing the total number of shares, TCS increased its earnings per share (EPS), which positively impacted its stock price.

Advantages of Buybacks:

• Flexibility: Buybacks can be adjusted based on the company's financial situation.
• Tax Efficiency: Shareholders are taxed only when they sell their shares, often at a lower capital gains rate.
• EPS Boost: Fewer shares increase EPS, potentially driving up stock prices.
• Signal of Undervaluation: A buyback can signal to the market that the company believes its shares are undervalued.

What Are Dividends?

Dividends are regular cash payments made to shareholders from a company's profits. They provide a steady income stream, which is particularly attractive to long-term investors seeking consistent returns. Regular dividends often reflect a company’s financial health and stability.

 Infosys

Infosys has a strong history of paying regular dividends. In 2023, the company declared a dividend of ₹17.50 per share, continuing its tradition of rewarding shareholders with reliable payouts. For many investors, Infosys' consistent dividend payments are a key reason for holding onto the stock, as they offer dependable income over time.

Advantages of Dividends:

• Consistent Income: Dividends provide a reliable income stream, appealing to income-focused investors.
• Signal of Confidence: Regular dividends can indicate a company’s stable earnings and financial health.
• Lower Market Impact: Dividends do not alter the number of shares in the market.

Which is Better for Investors?

The choice between buybacks and dividends depends on individual investor goals. Buybacks might be more appealing if you’re looking for capital gains, as they can drive up share prices. On the other hand, dividends are favored by those seeking a steady income, such as retirees or conservative investors.

 Reliance Industries

Reliance Industries employs both strategies. The company has conducted share buybacks to signal confidence in its stock value while also maintaining a robust dividend policy to reward its shareholders. This balanced approach allows Reliance to cater to a wide range of investor preferences.

Criticism and Risks:

• Buybacks: Critics argue buybacks can inflate stock prices and benefit executives with stock-based compensation, and companies might prioritize buybacks over important investments.
• Dividends: Paying dividends reduces the cash available for reinvestment in the company, potentially limiting growth opportunities.

Market Preferences:

Market reactions can vary depending on the economic environment. For example, in a low-interest-rate environment, buybacks might be more favored due to their tax advantages, whereas in a more stable economic climate, dividends might be preferred for their reliability.

Conclusion

Both buybacks and dividends have their advantages and can play an important role in a company’s strategy to return value to shareholders. In India, companies like TCS, Infosys, and Reliance Industries illustrate how these methods can benefit investors. Whether you prefer the potential for capital appreciation through buybacks or the steady income from dividends, understanding these strategies can help you make more informed investment decisions.

Ultimately, the best approach depends on the specific circumstances of the company and its shareholder base. Many companies use a combination of both strategies to balance short-term returns with long-term growth.

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We can see that price-to-sales is the most popular valuation ratio used on YCharts.

That is because the P/S ratio is easy to calculate by a stock trading and can be used for companies with a wide range of earnings and cash flow profiles.

P/S is also a very useful valuation ratio for high growth companies. Many high growth companies do not have positive earnings or cash flow in their early years.

P/S does not require earnings, so it can be applied to young companies as well as more established businesses.

Want to know more about the P/S ratio? Feel free to mail us - hello@swastika.co.in

What is a Price-Sales Ratio?

Price-to-sales ratio (P/S) is the ratio of a company's stock price to its sales per share. It is calculated as market capitalization divided by the revenue per share.

The price-sales ratio is similar to the price-earnings ratio in that it helps investors determine whether a stock is undervalued or overvalued.

The P/S ratio can be used with any type of company, but it is most commonly applied to those companies that are not profitable or whose profits are not consistent.

The P/S metric does not consider whether a company is earning a profit, only how much revenue it generates for each share outstanding.

Because profit margins vary widely across industries, the price-sales ratio does not always provide a meaningful comparison between companies in different sectors.

Also Read - Is It Good To Buy Low P/E Ratio Stocks?

There are Several Determinants of the P/S Ratio and they are:

1. Growth Rate: companies with a high growth rate will have a higher P/S ratio
2. Industry Norms: different industries have different norms for P/S ratio, so an industry average is important
3. Profitability: if the company is unprofitable, then there will not be any sales to get a ratio for, so it does not make sense to use this method in that case

Get confused no issues talk to our experts to get detailed information about determinations of P/S ratio - 0120 4400700

What is the Importance of Price-sales Ratio While Valuing Companies?

Price-Sales Ratio is a ratio of Price per share / Sales per share. For ex: Price per share = ₹100, Sales per share = ₹200 then the price-sales ratio = 100/200 = ₹0.5 which means that for every rupee in sales, the company's market value is 50 Paisa.

This ratio gives us the value of a company per share in terms of sales.

When comparing companies from different industries, it is important to compare their price sales ratios within their respective industry group.

Because different industries have different profitability and capital structures.

P/S ratio for typical technology companies tends to be higher than for other types of companies because investors are willing to pay more for growth.

The P/S ratio is also useful in comparing two companies that are growing at different rates because the P/S ratio will adjust accordingly and make them easy to compare.

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The PSR Ratio has Some Drawbacks:

1. It cannot be used as a tool to compare companies across different industries as each industry has its own norms and average P/S ratios. For Example: software companies normally have high P/S ratios compared to manufacturing companies due to higher margins in the former and lower margins in the latter.
2. It cannot be used alone as a valuation tool and should only be used in combination with other valuation metrics such as EV/EBITDA (earnings before interest, taxes, depreciation, and amortization), EV/Sales etc.
3. Since accounting practices differ from country to country, the country-specific price-sales ratios should be used for comparison instead of comparing global/pan-industry.

What is a Good P/S Ratio?

A price-to-sales ratio is a company’s share price divided by the company’s revenue per share. It compares a company’s stock price to the total revenue of the business.

If a company's P/S ratio is between 1 and 2, it is considered to be a good investment. However, a P/S ratio of less than 1 is considered excellent.

For example, imagine that Company A has a P/S ratio of five, while Company B has a P/S ratio of 10.

You can conclude that investors expect Company B to grow faster than Company A. This makes sense, because investors expect to pay more for future earnings growth.

Also Read about intraday trading

Difference Between PE Ratio and P/S Ratio

The P/S ratio is the Price to Sales Ratio. The price/Sales ratio (PS ratio) for a sector is calculated by taking the sum of the market capitalization of all the stocks in the sector and then dividing it by their aggregate sales.

Higher the ratio, the more expensive the sector. Lower the ratio, the cheaper the sector.

The Price/Earnings (PE) Ratio for a sector is calculated by dividing the total market capitalization of all the stocks in that sector by its total earnings.

If a company has a PE ratio of 25, it means investors are willing to pay ₹25 for every rupee of its earnings.

The higher the ratio, the higher is the risk associated with that company’s stock. The lower the PE ratio, the lower is the risk associated with that stock.

Conclusion

It can be concluded that there are many advantages and disadvantages to valuing companies, it depends on the companies.

In stock market trading, if the stock pays regular dividends with a record of steady dividend growth is called an income stock.

Companies usually issue income stocks with stable cash flows and well-established financial infrastructure.

It's also quite common for companies that issue income stocks to have long histories of success, a large market capitalization, and to operate at a mature stage in their growth curve.

Income stocks are often compared with value stocks. While income stocks pay out dividends at a high rate, value stocks are often trading at a price lower than the company's fundamental value or the stock's book value.

Investors generally invest in income stocks to get a stable cash flow from their investment without putting too much risk on their money.

Income stocks are generally considered less risky than other types of investments.

If you face any difficulty in understanding income stocks then feel free to mail us and talk to our experts.

What are the Types of Income Stocks?

Income stocks are considered to be less risky as compared to growth stocks.

Suppose a company is well established and has a consistent track record of paying dividends. In that case, it can be considered an income stock.

Income stocks are considered good for investors who want stability and regular stock trading returns in dividends.

Types of Income Stocks:

High Yielding Dividend Stocks

High yielding dividend stocks refer to companies with a long history of paying high dividend yields.

These companies have a steady cash flow stream and can afford to pay higher dividend yields.

Low Yielding Dividend Stocks

Low yielding dividend stocks refer to those companies that payout low or moderate dividend yields.

Such companies generally have a stable financial position. They reinvest their cash flows into their business to expand and grow.

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Features of Income Stocks

Regular Dividends

Dividend-paying stocks are those whose payments are made by a company to its stockholders. Most income stocks pay dividends regularly, whether monthly, quarterly or annually.

The amount of each dividend payment can vary depending on the company's profitability.

The total amount of dividends paid by a company over a given period is its dividend yield or dividend payout ratio.

Also, Read - 5 Smart Rules to Follow While Investing in Dividend Paying Stock

Low Risk

Income stocks offer lower risk than many other investments - they are usually large, well-established companies with long track records of paying stable or rising dividends.

Steady Growth Potential

Income stocks have the potential for steady growth through reinvesting their dividends into the business or using them for acquisitions.

Moderate Volatility

The price of income stocks tends to be less volatile than those of speculative growth stocks but more volatile than defensive shares (which pay lower yields and have less scope for capital gains).

Defensive in Nature

It has been found that income stocks are highly defensive in nature. They don't fluctuate with the frequent changes in the market.

Minimum Capital Investment

Income stocks don't reinvest their profits. Instead, they distribute most of their profits to the shareholders in the form of dividends. As a result, they lack a surplus fund for further investments.

Benefits of Income Stocks

These stocks provide stable dividends to shareholders as compared to other stocks.

Income stocks are less risky as they are less volatile than other stocks.

These are apt for those who have a low-risk appetite investment mindset viz students, non-income people, older people and more.

Companies that issue income stocks have a strong financial background and hence they provide stable dividends to their shareholders.

Companies that issue income stocks mostly come under the large-cap market.

Conclusion

Yes, it is good to invest in income stocks.

We would say that you should make sure you do not put all your eggs in one basket.

If you are investing for the long term, it makes sense to have a lot of different investments.

Income stocks are a great place to start when you begin investing as they are not too risky but offer a decent amount of risk.