Kashubhai preferred walking to his office at Barabazar, Kolkata. With his trademark safari-suit in gray and a man-purse under his arm, he reaches his office by 8:30 every morning, Monday to Friday. During my Kolkata days, Kashubhai was my mentor and was the one who introduced me to the capital market. A carrier stock-broker from the start, we met quite accidently in a chartered accountant’s firm in BBD Bag. Those days, in Nineties, I was fresh out of University and found myself misfit in my profession of selling insurance products. Our friendship grew and his son became my partner in our new farm. During that time, I learned straight from the master that no MBA could teach me in any University, which I tell you know confidently.
Kashubhai was typical, and both I and his son, Sunil, used to joke about him all the time. The story was that he kept a suitcase full of money under his bed, but he never bought a car or property in his life. He was a diehard trader in the stock market and was visibly upset when his son bought a new car with our first profit. His mantra was simple. Make investments, not liabilities. So to say, Kashubhai hardly kept any money with him, apart from that suitcase for emergencies, and invested or traded everything in the stock market. Once, I met him for lunch in his office (which is typically at four p.m.) after the closure of the stock market.
“What if tomorrow you need money for your daughter’s marriage?”
“Arrey beta, LAS hain na.” he answered.
So, what is LAS? How will it help Kashubhai when he needs money? To know more, read on:
• LAS stands for loan against securities. When a person mortgages his securities and avails a loan, it is called loan against securities. There are thousands of people who have invested only in shares, bonds, deposits or mutual funds and not in conventional instruments like properties or gold. When they need money in an emergency or otherwise, they can either liquidate some of their investments or can take a loan against such instruments from banks or non-banking financial companies.
• Normally banks or non-banking financial institutes will have a prior list of approved shares or deposits with them against which loans are available. This implies that well-traded stocks of the approved list are only eligible as collaterals. Normally, a 50 per cent value of the stocks or up-to 90 per cent of the value of bank deposits is approved as loan amount.
• What the bank will do, it will open a current account with an overdraft facility. The amount of overdraft is the approved loan amount. The customer can withdraw his/her required amount whenever he/she chooses and can repay it into his account whenever he/she can or choose to. An interest will be levied on the withdrawal amount for the duration of withdrawal as the interest by the bank or the non-banking financial company. The process is much simpler than a normal loan from a bank or NBFC.
• The interest rate charged by the bank or NBFC is lower than that of a personal loan or a credit card, because of the backing of the collaterals provided by the customer. Interest is calculated monthly on the daily outstanding balance of the overdraft account.
• ATM and internet banking facility can also be availed for the smooth running of the transaction from the account.
• Normally an amount of 5 lakhs to 10 crore is approved to resident individuals. LAS is usually not approved to NRIs and Hindu undivided families.
• Processing fees vary from bank to bank and are normally charged at 0.25 per cent and sometimes it goes up to one per cent.
• It is easier to apply for an LAS if you already have a demat account at your bank or NBFC.
One last word of caution. An LAS should be used for an emergency or other short-term needs. It should never be used for farther investment in the capital market under any circumstances.
The writer is a financial adviser based in Guwahati. Reach him @ 99541-39393
