Buying shares on a loan - Pros and Cons!

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The Equity Desk Forum :Market Strategies :Fundamental

Topic: Buying shares on a loan - Pros and Cons!

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retailinvestor
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Posted: 27/Jan/2013 at 11:32pm

Thank you Basantji.

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raz_737
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Posted: 28/Jan/2013 at 6:25pm

Originally posted by bandlab1

if you are going to pay back thru monthly savings in 6-8 months, why not keep buying with your monthly savings ? 6-8 months is not a huge advantage for a long term investors. and market is not going to move much (in my view) in 6-8 months.

as basant-ji has already mentioned what is important is how effectively you are going to use the funds ? if you have identified a special situation where there's a huge opportunity and cant wait for 6-8 months then only consider leverage. if its for regular portfolio building, use monthly savings

my 2 cents

I am looking at a special situation kind of thing and convinced that there is good chance that price will move up in 6-8 months.Even if it doesn't I am ok since its a long term position and willing to loose the interest on leverage.

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Kautilya
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Posted: 28/Jan/2013 at 6:41pm

Originally posted by raz_737

Which is the best way to get the leverage? I am looking at various options from the past few days and finally decided that pledging the shares for under 16% is the best long term option.

If you have one or many life cover policies from LIC then you can pledge them and get loan (amount depends on how many premiums you have paid so far and the bonus accumulated) at about 10% ROI.

My indecision is final.

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kd1974
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Posted: 29/Jan/2013 at 3:09pm

I would prefer to avoid the leverage altogether, if possible.

You may consider buying out of money call options (NOT future) on the stock, if stock is large available in F& O. a far out of money call option cost for next month or far month will be very low compared to financing at 16%, even if you let the options expire.

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