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Capital Market Related Loans

Capital Market Related Loans

Capital market investors can monetise their equity investments to raise capital for their personal/business financing needs. The capital market investments are excellent tools to raise finance for long term purposes. Customers are prompted to take periodic update of their existing securities (to assess market price and relative profit) and leverage them accordingly. Various Banks & NBFCs offer investors, customers and corporates several hassle-free financing options to optimally leverage their securities with quick turnaround time and faster processing. Loan against securities for the retail investors is categorized separately.

Types :

Promoter Funding

The promoter of a company will always want to expand and grow bigger by way of starting new operations, entering new markets and introducing new products. To do this he may require additional funds and Promoter Funding against his share-holding in the company is an excellent way to raise funds immediately.

Funds can be used for capital requirements, creeping acquisition etc.

  • Margin: 30% and above
  • Tenure: Up to 365 days with renewal option
  • Interest rates: Competitive
  • Documentation: Standard Loan Documents with PDCs
  • ESOP Funding

Employee contribution is the one of most important driving forces for a company’s success and future. Businesses cannot achieve their financial goals if employees do not exert their best efforts towards accomplishing the same. Hence, companies may motivate and reward their loyal & strategic employees by introducing an Employee Stock Option Plan (ESOP). The ESOP may either be set up as a trust fund or it can borrow money to purchase new or existing company shares. Employees may opt for ESOP Financing to purchase company equity shares. Various Financial Institutions provide an ESOP Financing solution that can help borrowing employees exercise their ESOPs.

  • ESOP Financing is offered to all eligible employees of approved companies
  • Loan tenure begins from date of disbursement for exercise of options and ends at time of sale/expiration of loan tenure. The Loan is renewable.
  • Minimum margin of 50%
  • Quarterly interest with principal payable from sale proceeds or at end of tenure
  • Loan Amount: Minimum INR 20 lacs
  • Interest rate:As per specific scheme launched
  • Documentation:Standard Loan Documents with PDC, POA demat account opening
  • IPO Funding

Various financial institutions provide leverage to the investors to apply in IPOs of reputed companies. Clients invest a small amount margin amount of the application money, with the institutions funding the rest.

They assist in completing all formalities, including refunds from the Registrar.

  • Single window clearance for bank, broking and follow-up.
  • Wholesale application increases allotment chances substantially – leverage your investments in the Primary market.
  • Margin and interest rates would be determined on a case-by-case basis.
  • Repayment of interest and principal is from sale proceeds. Loan tenure is typically 10-15 days.
  • Loan amount:Minimum INR 1 crore
  • Interest rate:Competitive
  • Documentation:Standard Loan Documents with PDC’s + POA bank and demat account opening

Margin Trade Funding Against Securities

Margin Trade Funding offers customers the opportunity to invest/leverage/trade in equity shares at a pre-defined margin. Margin Trade Funding essentially enables the customer to take a larger share of the equity market to a level that goes above his resources at hand. Thus, it is a mechanism that allows trading with borrowed funds or securities. It permits the customer to pay just a part of the total scrip purchase price, while financial institutions will provide a loan to account for the balance amount. However, the loan amount and scrip purchase is subject to the quality and approved list of the securities.

  • Purpose: Multiply trading/investment purchasing power by putting in a margin amount and financial institutions funding the remaining portion.
  • Margin: 2x multiplier (i.e. minimum 50%)
  • Security: As per Approved List of Securities for Shares
  • Lending Limit: Subject to RBI Guidelines on single party/group exposure and lending norms of the financial institutions
  • Interest Payment: Interest payment is on actual funds utilized
  • Tenure: Tenure of the loan is up to 365 with renewal option
  • Repayment: Interest is payable monthly. Loan can be repaid through sale proceeds.

Corporate Bonds

Investors can leverage their investments in debt markets by up to 10x, depending on security being purchased. Client trades will be settled through a special custodian account. Client will only need to make a margin payment, with the remaining pay-in to the clearing house being made by financial institution.

A separate bank and demat account with POA in favor of financial institution will need to be opened.

  • Margins: Ranging from 7.5% to 15%, depending on the rating of the security
  • Interest: payable monthly and principal through liquidation of securities
  • Loan Amount: Minimum INR 1 crore
  • Interest rate: Competitive
  • Documentation: Standard Loan Documents with PDC’s + POA bank and demat account opening
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