Introduction

When you need urgent funds but don’t want to sell your long-term investments, a Loan Against Bond can be a smart financing option. Whether you hold government bonds, corporate bonds, or tax-free bonds, many banks and NBFCs in India offer loans against them, helping you unlock liquidity without losing ownership.

In this guide, we’ll explain:

• What is a loan against bond?

• Types of bonds eligible

• Eligibility criteria

• Required documentation

• Pros and cons

• Best practices to maximize approval

Let’s dive in.

What Is a Loan Against Bond?

A loan against bond is a type of secured loan where you pledge your bond investments as collateral to get funds. You retain ownership of the bonds, but the lender holds the rights until the loan is repaid.

This facility works much like a loan against shares or mutual funds, except here the collateral is fixed-income securities like government or corporate bonds.

Why Consider a Loan Against Bond?

✅ Instant liquidity without selling investments
✅ Lower interest rates than personal loans
✅ Flexible repayment options
✅ Can be used for personal or business expenses

Types of Bonds Eligible for Loan

Different financial institutions accept different types of bonds as collateral. The most commonly accepted include:

1. Government Bonds

Issued by the central or state government, these bonds are highly secure and liquid. Since the risk is low, lenders offer attractive loan terms against them.

2. Corporate Bonds

These are debt instruments issued by private companies. While they offer higher yields, the risk factor is also greater. Hence, the loan amount sanctioned against corporate bonds may be lower.

3. Tax-Free Bonds

Issued by government-backed institutions like NHAI, PFC, and REC, these offer tax-free returns and are widely accepted by banks for loans.

4. PSU Bonds

Public Sector Undertaking bonds are semi-government securities and enjoy a decent credit rating, making them eligible for pledge.

5. RBI Bonds

These are bonds directly issued by the Reserve Bank of India. Highly reliable and preferred by most lenders.

Who Can Apply?

✔️ Eligible Applicants:

• Salaried professionals

• Self-employed individuals

• HUFs (Hindu Undivided Family)

• Companies and LLPs

• Trusts and Societies (case-specific)

✔️ Minimum Age:

• 21 years for individuals

✔️ Loan Amount:

• Generally ranges from ₹1 lakh to ₹5 crore depending on the value and type of bond.

Eligibility Criteria

Most lenders evaluate loan applications based on:

Note: Lenders usually assess the liquidity and credit rating of the bonds before approval.

Documents Required

Here’s a checklist of documents typically required to apply for a loan against bond:

For Individuals:

• PAN Card

• Aadhaar Card / Voter ID / Passport

• Bond holding statement (Demat)

• Latest ITR or income proof

• Bank statement (last 6 months)

• Passport-size photos

For Businesses:

• Certificate of Incorporation

• PAN of the company

• Board resolution

• Audited financials

• KYC of authorized signatory

Collateral Documents:

• Demat account statement showing bond holdings

• Lien mark or pledge confirmation

Loan Amount & Interest Rates

Interest rates are usually lower than unsecured loans, as this is a secured facility.

How Does It Work?

1. Pledge Your Bonds: Submit a request to the lender along with required documents and demat statement.

2. Verification & Lien Creation: The lender evaluates the bond’s eligibility and places a lien.

3. Loan Disbursal: Once approved, the loan amount is credited to your bank account.

4. Repayment: EMI-based or bullet repayment options available.

5. Closure: After full repayment, the lien is removed.

Pros & Cons of Loan Against Bonds

✅ Advantages:

• Quick disbursal (within 24–48 hours)

• Retain ownership of bonds

• Cheaper than personal or business loans

• No prepayment penalty with many lenders

❌ Disadvantages:

• Only specific bonds are accepted

• Fluctuations in bond value may affect loan eligibility

• Non-repayment leads to liquidation of bonds

Top Banks & NBFCs Offering Loan Against Bonds in India

Best Practices to Follow

• Always check the LTV ratio before pledging your bonds.

• Avoid over-leveraging; borrow only what you need.

• Monitor your bond portfolio regularly.

• Repay on time to avoid penalties or liquidation.

• Ensure your bonds are in demat form — lenders do not accept physical bond certificates anymore.

Frequently Asked Questions (FAQs)

1. Can I get a loan against physical bonds?

Most lenders only accept dematerialized (demat) bonds. Physical bonds are rarely accepted today.

2. Is interest earned on bonds still applicable during loan tenure?

Yes, you’ll continue earning interest, but it may be held or adjusted by the lender during the loan period.

3. Can I pre-close the loan early?

Yes, many lenders allow pre-closure without additional charges.

4. What happens if I fail to repay?

The lender can liquidate your pledged bonds to recover the outstanding loan amount.

Final Thoughts

A loan against bond is a smart financing option if you want quick liquidity without giving up your investments. It’s ideal for professionals, businesses, or anyone with sizable bond holdings. By understanding the types of bonds eligible, the application process, and documentation required, you can improve your chances of approval while keeping your investments safe.

📌 Need help applying for a loan against your bonds?
At CreditCares, we offer expert guidance and connect you with top lenders across India for the best deals and fastest processing.