Mirae Asset Financial Services has introduced a 100% digital loan facility for investors holding shares in CDSL demat accounts. The service offers credit between ₹25,000 and ₹1 crore at a 10.25% interest rate. While this provides quick liquidity without the need to sell investments, investors should be aware of risks like margin calls if market values drop.
Mirae Asset Financial Services, the non-banking financial company (NBFC) arm of Mirae Asset Financial Group, has launched a new digital service that allows retail investors to take loans against their equity holdings. This facility is specifically tailored for investors holding demat accounts with Central Depository Services Ltd. (CDSL), the largest depository in India by account volume.
Digital Process and Loan Terms
The service digitizes the entire Loan Against Shares (LAS) process, which historically required significant paperwork and a processing time of seven to ten days. By moving the application, pledging of shares, and approval process online, the company aims to reduce the wait time to just one day. Investors can apply for loans starting from ₹25,000 up to a maximum of ₹1 crore.
The loan carries an annual interest rate of 10.25%, which is applied only to the amount of money actually used by the borrower, rather than the entire sanctioned limit. A notable feature of this product is the absence of prepayment or foreclosure charges, allowing borrowers to repay the loan at any time without incurring extra costs. The amount an investor can borrow is determined by the specific shares they pledge, with the company categorizing stocks based on their market capitalization and price volatility to decide the loan-to-value ratio.
Strategic Intent and Investor Risks
For Mirae Asset, this move is a strategic effort to capture a larger share of the retail lending market by offering a technology-driven alternative to traditional bank-led or offline lending channels. By enabling investors to borrow against their portfolio, the company provides a way to access immediate liquidity without the need to sell long-term investments, which can be beneficial for those who want to avoid the potential tax implications of selling shares during a market rally.
However, investors should consider the inherent risks of borrowing against equity. The primary risk is that the loan is secured by market-linked assets. If the value of the pledged shares falls significantly, the lender may issue a margin call. This requires the borrower to either provide additional cash or more shares as collateral to maintain the required loan-to-value ratio. If the borrower fails to meet these requirements, the lender retains the right to sell the pledged shares in the open market to recover the loan amount. Therefore, while this facility offers convenience, it is important for borrowers to maintain a buffer in their pledged portfolio to handle market volatility. The next monitorable for shareholders and users will be the adoption rate of this digital platform and how it impacts the company’s retail loan book growth in the coming quarters.