Table of Contents
When you take a loan against shares, you still remain the owner of those shares. Dividends, bonus shares and voting rights usually stay with you, while the lender only holds a pledge on the shares until you repay the loan.
This is a common worry for investors who have held good dividend-paying stocks for years. They need money now, but selling would mean giving up regular payouts and possibly paying capital gains tax. Before pledging, it is natural to ask what you keep and what you give up during the loan period. This article answers exactly that.
Who Owns The Shares After You Pledge Them
Ownership is the first thing most borrowers want to be sure about, and the answer is simple.
When you take a loan against shares, the shares remain under your ownership. You pledge them as collateral without selling them. They stay in your demat account with your depository, NSDL or CDSL. The lender becomes the “pledgee”, which means it has rights over the shares only if you fail to repay the loan.
During the loan:
- The shares continue to show in your demat account
- You remain the beneficial owner
- You cannot sell or transfer the pledged shares
- The shares are released back to you, free of the pledge, once you repay
So you lose the freedom to sell, but not the ownership itself.
Do You Still Get Dividends
Yes, and this is one of the main reasons investors prefer pledging over selling. Companies pay dividends to the shareholders registered on the record date. Since the pledged shares are still held in your name, the dividend is credited directly to the bank account linked to your demat account. The lender does not receive it.
This means your shares continue to generate income while you use the loan for your needs. For investors with a steady stream of dividends, this income can even help with interest payments on the loan.
Keep in mind that dividends are taxed in your hands at your income tax slab rate, just as they would be without a loan. Companies also deduct TDS when your dividend from a company crosses the set limit in a financial year.
What Happens With Bonus Shares, Splits And Rights Issues
Corporate actions do not stop because your shares are pledged. Here is how they are usually handled.
- Bonus shares: If a company issues bonus shares, the additional shares are generally credited to your demat account. Since the original shares are pledged, the bonus shares may also need to be pledged, depending on the lender’s process and applicable depository procedures.
- Stock splits: A stock split increases the number of shares and reduces the price per share proportionately. The pledge must be updated to reflect the revised shareholding, subject to the applicable depository process. The split itself does not increase the overall market value of your holding.
- Rights issues: A rights issue gives eligible shareholders the option to buy additional shares. If your existing shares are pledged, your ability to exercise this right depends on the issue terms and applicable procedures. You would generally need to arrange your own funds to subscribe to the additional shares.
- Buybacks and open offers: If you want to tender pledged shares in a buyback or open offer, the pledge may need to be released first. This could require repayment of the corresponding loan amount or other arrangements approved by your lender. Check the applicable offer deadlines and your lender’s process before proceeding.
The main point is that the benefits of corporate actions stay with you, though the lender may want any new shares linked to the pledged holding to be added to the security.
Can You Still Vote At Company Meetings
Many investors like to exercise their voting rights, and pledging does not take that away.
Voting rights stay with you as the registered owner. You can attend annual general meetings, vote on resolutions and use e-voting as before. The lender does not vote on your behalf unless it has taken over the shares after a default.
What Happens If You Default on Your Loan Against Shares?
Your rights are protected only as long as the loan stays in good shape. This is the part every borrower should understand clearly.
With a loan against equity shares, lenders usually offer around 50% of the value of approved shares. If share prices fall sharply, the value of your security drops. When it goes below the required level, the lender sends a margin call. You will then need to repay part of the loan, pledge more shares or add cash within a set time.
If you do not respond, or if you miss repayments, the lender can invoke the pledge. This means it sells or takes over some of your shares to recover the dues. Once that happens:
- Those shares are no longer yours
- You lose all future dividends from them
- Any gains from a later price rise go to someone else
Watching your portfolio and responding quickly to alerts is the best way to keep both your shares and your dividends.
What Happens After You Repay Your Loan?
Once you repay the loan, the final step is to remove the pledge from your shares. After full repayment, including interest and charges, the lender sends a request to release the pledge through the depository.
You receive an alert, and the shares become free in your demat account, usually within a few working days. You can then sell, transfer or hold them without any restriction.
Final Thoughts
Pledging your shares does not mean handing them over. You keep ownership, dividends, voting rights and most corporate action benefits for as long as the loan is in order. The only real risk to these rights comes from falling prices or missed payments. Pledge with some buffer, monitor your margin and repay on time, and your shares will keep working for you throughout the loan.