Loan Against Bonds and Debentures: What You Need to Know

In today’s investment landscape, many Indian investors are exploring ways to get quick liquidity without selling their long-term assets. If you’re holding bonds or debentures, there’s good news: you can now raise funds against these instruments without breaking them prematurely.

A Loan Against Bonds and Debentures allows you to use your fixed-income securities as collateral and borrow funds at relatively low interest rates. This means you continue to earn interest on your investments while getting access to quick capital when you need it the most.

Whether you’re facing a short-term cash crunch, planning a big-ticket expense, or simply want to avoid dipping into your savings, this route could offer a practical alternative.

Key Takeaways

• Understand how loans against bonds and debentures work in India.
• Learn which types of bonds and debentures are eligible.
• Compare benefits, risks, and processes of this borrowing method.
• Make informed decisions that preserve your investment returns.

How does loan against bonds work?

This option lets you raise funds without having to liquidate your bond investments. Here's what you should know:

What’s the basic process?

• Submit your bond or debenture holdings to the lender.
• A lien is marked on your demat account or physical bond certificates.
• Funds are usually disbursed within 24 to 48 hours after verification.

Who can apply for it?

• Resident Indians, NRIs (based on lender policy), and HUFs.
• You must have eligible bonds or debentures worth at least ₹1–2 lakhs.
• Suitable for salaried professionals, freelancers, and business owners.

What are the key benefits?

• You keep earning regular interest on your bonds.
• There’s no need to exit your investment before maturity.
• Interest rates are lower than typical unsecured personal loans.

What are the risks?

• If bond value drops, lenders may ask for additional security (margin call).
• Illiquid bonds may reduce loan eligibility.
• Interest rate variations can affect affordability.

Which bonds and debentures are eligible?

Not all bonds qualify. Lenders usually set specific criteria around issuer type, credit rating, and listing status.

Government vs corporate bonds

• RBI or G-Sec Bonds: Generally accepted due to sovereign backing.
• PSU Bonds: Safe, especially if backed by government enterprises.
• Corporate Debentures: Must be investment-grade rated (BBB and above).

Listed vs unlisted debentures

• Listed bonds are easier to pledge due to market visibility.
• Unlisted debentures may be accepted selectively, based on issuer profile.

Demat vs physical certificates

• Demat bonds are preferred for ease and security.
• Physical certificates may need to be dematerialized first via your DP.

What factors affect approval?

• Issuer's credit rating and debt servicing history.
• Liquidity and market demand for the bond.
• Remaining tenure and frequency of interest payouts.

Is loan against debentures safe for you?

Loans against debentures are relatively safe, but certain factors determine suitability and risk.

How do lenders assess risk?

• Issuer’s credit profile and financial strength.
• Your own credit history and repayment ability.
• Default history of the bond or debenture in question.

What are your repayment options?

• Interest-only EMIs (pay only the interest each month).
• Bullet repayment (full repayment at term end).
• Flexible credit-line-based repayment for ongoing needs.

Are there any hidden costs?

• Processing fees and documentation charges.
• Charges for setting up the lien or demat pledge.
• Early repayment or foreclosure penalties (check terms).

When should you avoid it?

• If your bonds are close to maturity (less time benefit).
• If you're unsure about bond market volatility.
• If the security has limited trading volume (hard to pledge).

Conclusion

Taking a Loan Against Bonds and Debentures is a smart move if you want access to funds without letting go of your long-term investments. It’s especially useful for short-term needs like medical expenses, education fees, or managing business cash flow.

Quicklend offers a fast, paperless process for asset-backed loans. You can apply online, check your eligibility, and receive funds in a few clicks – all while your investments keep earning.

To learn more or explore this option, visit Quicklend’s Mutual Fund Loan page.

This is general guidance. For personalized loan advice, contact our advisors.