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Is it a Good Idea to Take a Personal Loan And Invest in the Stock Market?


Are you thinking of diversifying your portfolio? As a beginner, you should know that the share market can be capital-intensive, especially when planning to invest in large or mid-cap firms whose share price per unit is high.

The stock market is one of the most popular investment classes because of the higher returns it warrants. However, investing in the stock market is rife with risks and should be done by those with a high-risk appetite. 

If you have enough funds to invest in the stock market, then you are good to go, but if not, then one of the easiest ways to secure funds is through a personal loan. Although it’s easy to get immediate funds through personal loans, the question is whether to go this way to start your investment journey. Let’s take a look

Personal loan for investments

personal loan for investmenting in stocks 

Most people use a personal loan as leverage to invest in stocks. The idea behind this logic is that the cost of a personal loan is recovered with significantly higher returns from this investment, ensuring a good profit margin. 

It would be wise to understand the pros and be wary of the cons before you apply for personal loan to invest in shares. 

Advantages of taking a personal loan for investment in stocks

Higher corpus: When you take a personal loan to invest in stocks, you have bigger cash stack at your disposal. Unlike setting aside a portion of your income every month or dipping it into your savings account, with a personal loan, you can easily have a large corpus that you can use to invest in stocks to get good returns.

Tax benefits: Claim tax deduction on the interest paid on a personal loan to save taxes. You can also avail of tax benefits from the investment concessions granted under section 80c of the Income Tax Act in India. 

Profit and Cost: Note that a personal loan comes at a cost and additional expenses like the interest and services cost. Investment in the stock market with a personal loan can cover these expenses only when you get significantly higher returns on your investment. 

So, you need to know the stock market as it is full of risks. But if you are wise about where you invest, you can enjoy significant benefits/profits, which can outweigh the total cost of availing of a personal loan. 

Things to consider: If you feel you can handle investing in the stock market with a personal loan, you still need to consider the following –

Interest rate: Look for an affordable personal loan for investing. You must find the loan with the most attractive interest rate to make it work in your favor. As the interest rate determines the loan’s overall cost, it will also play a huge role in your monthly payments. IndusInd Bank, one of the trusted bank provides personal loans at one of the lowest interest rates starting from 10.49%.

Repayment: Generating returns from the share market takes time. Therefore, evaluate your repayment plan towards the personal loan to avoid any additional late payment fees.

Evaluate your appetite: Higher returns from the stock market may look attractive, but one has to be prudent while investing. Market performance depends upon various factors, and it makes sense to understand the nitty-gritty of it all. If your risk appetite is high and you can handle the market changing suddenly overnight, then go for it, and align your loan repayment strategy accordingly.

Taking a personal loan to invest in the stock market is an idea you can consider. If you have done your research, a personal loan can help you secure additional corpus that you can use to generate higher returns.