If you run an MSME or a small business in India, you already know this:
Sales don’t stop. Expenses don’t stop. But cash flow? It always comes late.
Every MSME owner faces the same situation — payments stuck with clients, sudden bulk orders, unexpected raw-material price hikes, seasonal fluctuations, GST deadlines, salary pressure, and the never-ending cycle of finding working capital.
In moments like these, most business owners either:
But what if you could access instant funds without selling your shares, without paying high interest, and without EMI pressure?
That solution is called OD Against Shares — a surprisingly powerful financial tool that 90% of MSMEs are still not using.
Let’s decode it in a simple, practical, MSME-friendly way.
related post: Loan Against Shares: A Smart Tool — But Dangerous During Market Volatility for MSMEs
(Focus Keyword: OD Against Shares)
OD Against Shares is an overdraft facility where a bank gives you a credit limit by taking your shares, mutual funds, ETFs, or bonds as collateral.
The best part?
For MSMEs, this is a lifesaver because:
With OD Against Shares, your investment portfolio becomes your emergency working capital partner.
Imagine you run a manufacturing unit.
You secured a good order worth ₹18 lakhs.
Great news!
But the customer will pay after delivery…
And suppliers want 50% advance now.
Instead of taking a personal loan or selling shares:
This flexibility is exactly why OD Against Shares is becoming the secret tool of smart MSME owners.
Here’s why more small businesses are shifting to this model:
Client payments delayed? Use OD.
Supplier is calling? Use OD.
GST deadline? Use OD.
During slower months, you simply don’t use the limit — no usage means no interest.
You don’t miss out on compounding.
Withdraw → Repay → Withdraw → Repay
Repeat as many times as you want.
Here’s the MSME-friendly breakdown:
Your shares remain in your demat — only marked as “pledged.”
Most banks accept:
Unlisted shares are not accepted.
Typical range:
Lower for debt funds/SGBs
Higher for equity shares
Compared to other MSME financing options, it’s one of the lowest-cost facilities.
Banks usually offer:
Shares value = ₹20 lakh
LTV = 60%
OD limit = ₹12 lakh
Use it for inventory, salaries, emergency orders.
No unnecessary cost.
Most banks approve within hours.
No paperwork headache.
Repay anytime.
Even though OD Against Shares is powerful, it comes with responsibilities.
If your shares fall in value, the bank may ask you to add:
This is called a margin call.
If you ignore the margin call, the bank can sell shares to protect its money.
Because OD is flexible, careless use can lead to over-borrowing.
Companies, partnership firms, proprietorships, and HUFs can all apply.
Personal KYC + Demat details
Business PAN
GST (if applicable)
Bank statements
Simple, minimal paperwork depending on bank.
| Bank | Why MSMEs Like It | Typical Interest |
|---|---|---|
| HDFC Bank | Fast processing, digital pledge | 10–12% |
| ICICI Bank | OD + LAS, good online portal | 9.5–12.5% |
| Axis Bank | High LTV ratios | 10–12% |
| Kotak Mahindra Bank | Strong MF acceptance | 9–12% |
| SBI | Good for govt-backed securities | 9–11.5% |
| Bajaj Finance | App-based instant access | 10–13% |
Garment exports, trading, manufacturing, FMCG distribution.
Use OD to buy raw materials instantly.
Client payments always come late. OD fills the gap.
Machine breakdown, urgent repairs, employee salaries.
Short-term capital needs during growth phase.
But if you have a decent portfolio, OD Against Shares is far more efficient.
If the overdraft amount is used for business purposes:
This reduces taxable income.
No capital gains tax.
Yes. Banks prefer LAS because it’s fully secured.
The bank issues a margin call. Add more shares or repay.
Yes. It works like a credit line.
Yes. If your portfolio grows, you can request a higher limit.
Yes, equity and hybrid funds are widely accepted.
Yes, but the collateral matters more.
Yes, if loan is used for business
Most small business owners get confused between OD Against Shares and Loan Against Shares (LAS).
Both involve pledging shares or mutual funds, but they work very differently — especially when it comes to cash flow, interest cost, and flexibility, which matter the most for MSMEs.
Here’s the simplest breakdown:
A revolving overdraft limit — like a credit line.
You use funds when needed and repay anytime.
A fixed-term loan — like a standard loan with EMIs.
You get the full amount at once.
You pay interest only on the amount used, not the entire limit.
Example:
Limit ₹10 lakh → You use only ₹2 lakh → Interest charged on ₹2 lakh only.
Interest starts from day one on the entire sanctioned amount, even if you don’t use all of it.
Best for working capital, supplier advances, salary payout, seasonal cash crunch, and urgent business needs.
Better for one-time expenses, like buying machinery, bulk inventory, or planned expansion.
Usually 1 year, but renewable every year.
Fixed tenure: 12–36 months.
Typically has:
May include:
✔ Zero EMI pressure
✔ Pay only when you actually use money
✔ Can withdraw → repay → withdraw again
✔ Perfect for unpredictable MSME cycles
✘ EMIs continue irrespective of business sales
✘ Less flexibility
✘ Suitable only if you have stable monthly cash inflow
| Feature | OD Against Shares | Loan Against Shares (LAS) |
|---|---|---|
| Type | Overdraft | Term Loan |
| Funds Usage | Withdraw as needed | One-time lump sum |
| Interest | Only on used amount | On full loan amount |
| Repayment | Flexible, no EMI | Fixed EMIs |
| Best For | Working capital | Planned expenses |
| Tenure | 1 year (renewable) | 1–3 years |
| Ideal For MSMEs | ✔✔✔ High fit | ✔ Medium fit |
If your business has irregular cash flow, seasonal income, or frequent working capital gaps, then:
It is flexible, cheaper during low-usage periods, and allows you to manage cash flow intelligently.
If you need a big lump sum for a specific purpose, like buying machinery or executing a large order, then:
Tabrez, founder of BusinessZindagi.com, writes practical, experience-based content to help MSMEs grow. Having navigated cash flow issues, exports, and business finance himself, he simplifies complex financial tools so small businesses can make smarter decisions and scale without stress.
This article is for educational purposes only. Interest rates and policies change. OD Against Shares involves market risks. Always verify with your bank and consult a financial advisor for personalised advice
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