Personal Loan and Equity Investment

For the moments when time might not be in favor of you, personal loans are the source of finance that helps you maintain a stable financial condition. Whether it is planning the vacation of your dreams or paying the down payment of the house you have been looking for from a long time, these loans are the right choice when it comes to management of funds.

A personal loan can be both, secured and unsecured. The end use of the loan is not exposed to the lender while taking out the loan. In case of unsecured personal loans, the interest rate to be paid by the borrower is higher than that of the secured ones. Even though the rate of interest is highly influenced by the credit score and income of the borrower, an unsecured personal loan cost 15% to 25% of approximate interest rate from the borrowers.

Personal loans are highly beneficial when it comes to fulfilling your need. However, the problem starts to form its shape when people start borrowing these types of loans in order to make investments like equity investments. Personal Loan and equity investment cannot go hand in hand. If you are someone who is planning for the same, then it is time to think again.

Due to the evolving market condition, it is not a beneficial thought to make investment using a personal loan. The rising rate of inflation is one of the biggest reasons for the same. The numbers that were last posted ranged above 12%. Due to the growth of GDP at around 8% to 9%, the economy is expected to see a negative growth in the current fiscal.

By increasing the Cash Reserve Ratio by 50 basis points the Reserve Bank of India has tried to tighten the liquidity situation. In order to keep a track of the inflation numbers, the bank is expected to increase basis points by another 50 to 100 basis points.

Using personal loan for investment can make the situation worse if the loan taken out by you is on a floating interest rate. There are chances that you might even lose the money that you have invested in the equity market. In addition, you might also have to pay more amount of money against your loan. Both of the situations can get really difficult for you.

If you are looking forward to invest into equity markets, an easy and risk free way to do the same can be through the way of arbitrage. This means that you buy in the cash market through the loan amount and sell it in the derivative market. This way you get the price higher than the price at what you bought including the amount of the rate of interest.