SSETS such as A gold jewellery, vacant property, st ocks and insurance plans or provident fund, which are supposed to give you returns in the future can be useful even now. Just a change of mindset and smart utilisation can make it work for you even today. For example, mortgaging gold jewellery is not considered auspicious in north and east of the country, but is popular in the south. This trend is changing and so there is a surge of organised players waiting to give you loans against jewellery. Even life insurance, which is primarily considered as a financial instrument to restore financial status of the family after policyholder's death or any unforeseen event, can also fulfil immediate cash requirements of the policyholder. Financial Chronicle explores use of four such idle assets: Mortgage gold jewellery recent advertiseA ment on gold loans showed a husband walking halfway through his lunch after his wife suggested pledging of her gold to raise money for his business. The couple shown was consciously portrayed as Gujaratis, suggesting the gradual change in the mindset of those in north and east on raising gold loans. Taking loans against gold may be a new concept for many in India.
But for those in south it is a popular practice. The difference this time is that the business has moved from the unorganised local pawnbrokers to the organised players.
South accounts for 8590 per cent of the gold loans market in India, according to Manappuram Finance, a leading player in the business. The size of the gold loan market in India was at Rs 50,000 crore during the year 201011. The organised gold loan market in India has been growing at a CAGR of 40 per cent over the past eight years, according to an IMACS report on gold loans market in India.
The growing awareness on the usability of gold, which in many families many families lies as an idle asset in the locker and the fetish with which Indians buy gold makes firms like Manappuram Finance, Muthoot Fincorp and many other wanting to cash in on the market. But NBFCs are at liberty to process gold loans quickly and many promise loans pro cessing time of five or even three minutes.
For traders and small businessmen having a quick turnaround time, it makes sense to take loans from NBFCs as one can take money and also repay it faster.
Lease out vacant property to firms here are more ways and T means than one to utilise idle properties in a meaningful manner. It's not just institutions, organisations or developers who can do this but even individual owners can use their idle properties gainfully.
There are increasing number of instances where NRIs are using their properties or apartments back home as company guest houses and even as service apartments for IT sector employees, which fetch them handsome monthly returns, covering up maintenance cost with a margin.
If the idle property is at some exotic locations or even at some weekend destinations, that can be converted or upgraded or developed for tourism purposes. A number of people are doing it at places such as Shantiniketan.
Everybody wondered if I would at all be able to unlock the values of this idle property. But the return that this once idle prop erty has given me and is still giving is for anyone to see."
Pledge stocks for loan or those investors F who are in dire need of funds but do not want to part with their share investments -as the stock prices may appreciate in near future there is some hope.
Many leading brokerages including ICICI Securities, Edelweiss Securities, HSBC Invest direct among others offer loans against pledging of shares. Investors can also get liquidity by pledging mutual fund units and ETFs.
The loan amount is decided taking into account the downside risk of the security involved. Also, most security involved. Also, institutions have a list of "approved stocks" against which only they allow pledging.
Currently RBI regulations caps loans against securities to an individual to Rs 20,00,000.
There is a hair cut of up to 40 per cent on the current market value of the share while determining the loan amount that can be sanctioned for that many shares.
Suppose somebody has 1,000 Reliance Industries shares and the shares have a market value of Rs 1,000 per share which adds up to Rs 10 lakh, that person can get a loan of Rs 6 lakh with a 40 per cent haircut. However, these institutions are wary of offering loans against physica shares. We prefer demat shares because validating the genuineness of the shares in physical format is a problem. Interest rates on such loans against shares is around 12 per cent per annum.
How a person can go about pledging his share is explained on a bank's portal for the convenience of the user.
First, one has to pledge his securities in favour of the bank or the financial institution. The lender then grants that individual an overdraft facility up to a value determined on the basis of the securities pledged. A current account is opened and he can withdraw money as and when h requires. Interest is charged only on amount withdrawn. The tenure for such loans ranges from 6-36 months. As far as timing/season for such pledging is concerned, one may assume that such pledging flourish when equity markets are down, as it is difficult to get out from the investment already made as one has to book loss. The borrower continues to avail the ownership benefits like dividend, bonus and other rights on the scrips. The transaction attracts applicable service tax in accordance with the Finance Act 2004.
Get loan against life insurance ife insurance is primarily considered as a financial instrument to restore financial status of the family after policyholder's death or any unforeseen event. However, life insurance policies can also be used to fulfil certain immediate cash requirements of the policyholder.
LIC has pioneered the concept of loan against life insurance.
LIC has been providing the facility of loan in its traditional policies since begin ning. At times the policy holder might face some liquidity crunch and avail loan facility on his policy. Ulips have the feature of partial withdrawal, which makes them flexible and therefore not too many Ulips have the feature of loans.
Traditional life insur ance policies like endow ment plans and money back policies provide option of loan against the policy. Ulips e allow partial withdrawals after five years, which can be used for similar purpose.
The interest on loan is generally much lower compared to interest charged by banks or other financial institutions on personal loans. Further the loan on policy is available quite easily as it is given against its value. Even easier than loan against gold or silver where problems may be there of valuing. The loan taken against the life insurance policy falls under the category of secured loan and hence the rates charged by the in charged by the insurer are typically benchmarked to PLR or 10-year g-secs depending on the insurance company. Recently the rates have been 9-12 per cent which is considerably lower than the prevailing rates of 16-24 per cent interest on personal loans provided by the banks. Also, the insures need to intimate Irda every year about the rates charged by them for loans against policy.
