Stock lending & borrowing

GAIV

New Member
#1
I have started this new thread to get knowledge on "STOCK LENDING & BORROWING":confused: facility. Interested members may please post messages.

Thanks

Gaiv
 

GAIV

New Member
#3
I had enquired with several brokerages regarding this subject.

Most of them do not offer these services. Only a select few (I do not remember their names, maybe Hsbcdirect and Religare) are offering these facilities. It has to be done by visiting their offices in Mumbai and signing documents to pledge the shares. You cannot do this online through your online trading a/c, say for example, as we can put shares as collateral for margin trading. In order to remove the pledge so that you can sell the shares you again have to visit their office to sign documents.

One of the brokers even sent me a list of interest or returns (I do not know the exact terminology) that can be received for pledging shares. The returns were like 2% to 4% depending on the stock being pledged. Very small amounts of shares may not be accepted.

It can thus be sumarised that pledging of shares can be done by long term investors. Your shares will lie with you in your demat a/c for years without you earning any returns in terms of the interest you would have otherwise gained if that amount had been in cash, say in a savings bank a/c. Note that the returns would be varying from month to month or year to year and also different for different shares.

Please note that shares of small cap companies or companies in problem may not be accepted for pledging.

I DO NOT KNOW WHETHER THE DIVIDEND DURING THE PLEDGING PERIOD IS CREDITED TO OUR A/C OR GOES TO THE BROKER TO WHOM THE SHARES HAVE BEEN PLEDGED.
This should be an important consideration before taking any decision because on an average we do make a return of 1 to 3% (depending on price at which we have bought the shares) as dividend on shares of good companies.

ANOTHER POINT TO BE NOTED IS THAT YOU SHOULD NOT DEAL WITH SMALL BROKERAGE HOUSES. It would be better to deal with reputed brokerages. Needless to say, since online pledging of shares is not yet available in India and you have to sign documents, look where you put your signature and also do not forget to read the fine print.

The information is correct to the best of my knowledge.

I hope this information may be useful.

If anything is to be added or corrected I would welcome it.

Thanks.
 
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