Using Credit Card to Buy Shares in India

Can you use credit cards to invest in shares in India? Can you buy stocks with credit cards in India 2021?

No. You cannot invest in shares/stocks using credit cards. But even if it was allowed somehow and it does sound tempting no doubt, you shouldn’t be doing it.

If you know how a credit card works, then you would know that a credit card is just a form of short-term loan. But if you do not clear the bill outstanding before the due date (or you just pay the minimum amount due or MAD) you end up paying interest rates close to 40% per annum.

The idea of using credit cards to buy shares is to use the 45-50 day interest-free grace period to get interest-free money to invest in stocks. But this may not work out as planned if things go wrong (we will discuss an example in a bit).

When it comes to credit cards and investments, the Indian regulator SEBI has strictly banned the use of credit cards for investments in India. So you cannot buy shares in the market using credit cards. The logic is that when it comes to investment, it should always be done using the surplus you have from your income/salary. You should never borrow to invest. As in the case of a loss, you only lose your own money and not the borrowed money.

If you somehow invest in stocks, then it’s possible that your investment might do well and you are in profit. But since market returns are not guaranteed, it is also possible that the investment does badly and you are in a loss. So if you buy stocks using credit cards and it ends up in a loss, then not only you will have to bear the pain of investment loss, but also will have to pay back the amount you invested from your credit card to the credit card issuer. And if you delay the repayment, then you will end up paying very heavy interest of 30-40% on the outstanding credit card amount. Your credit score will also be adversely affected.

Let’s take an example to understand how investing in stocks using credit cards can backfire big time.

Though it’s not allowed in India, just hypothetically assume that you invest Rs 1 lakh using credit card in a stock that costs Rs 500 per share on 7th April 2021. You thought you could make a quick profit in a few weeks time and then you will repay the credit card dues before the due date. So you end up buying 200 shares of the company by spending Rs 1 lakh from your credit card.

Now your credit card bill is generated on 14th May 2021. As per the bill, you need to repay Rs 1 lakh back to the credit card company before 4th June 2021.

But unfortunately due to a sudden crash in stock markets (like the crash of March 2020), the share price of the stock you bought comes down to Rs 280 per share around 1st June 2021. That’s a fall of -44% on your purchase price of Rs 500 per share.

Now the value of your Rs 1 lakh investment is Rs 56,000. And you have just a few days left to repay back the full Rs 1 lakh to the credit card company in 4th June 2021.

Do you see how deep trouble you are in?

You need to repay Rs 1 lakh but you only have Rs 56,000 (that too if you sell your shares at a loss). Either you dip into other savings to repay the full dues on time. Or you pay the partial amount and end up paying a very high 30-40% interest on your credit card outstanding due (Rs 1 lakh – Rs 56,000 = Rs 44,000).

It is for this very reason that the SEBI is against investment in stocks using Credit cards. In fact, SEBI has gone to extent of banning credit cards for all types of investments in India. And rightly so!

And how can one invest in stocks using credit cards? Though SEBI does not allow buying stock using credit cards, one can always withdraw cash using a credit card and depositing the same in the bank to invest in stocks. But cash withdrawal charges will have to be paid. That is in addition to the risk of not being able to return the full amount on time in case of losses in your share investments.

When market falls and stock prices are very low, you might be tempted to borrow and invest, either via taking a personal loan to invest, or you might find some other approach like investing in stock using credit cards. But don’t be tempted with this approach and don’t be greedy.

If you buy stocks with a credit card, then you are taking the risk of borrowing money that you might be unable to repay back in time.

So my simple advice here would be to not use a credit card to buy shares, even if you find some way to do it. Speculating on borrowed money is a financial crime and can push you in deep financial trouble.

And since we are talking about Credit Card and investing, the right approach is to clear your credit card dues in full before you begin investing.

SEBI has recently been (looking) to permit investing in mutual funds via Digital Wallets that can be loaded with credit card.

As for investing in stocks using credit cards, you cannot do it. So you don’t really have a choice in this.

So the answer to questions like…

  • Can we buy shares using credit card in India?
  • Can I use credit card to invest in stocks?
  • Can you invest using a credit card?

…is a simple NO.

But even if you had, even then investing using credit cards makes no sense. You are basically taking a loan at 30-40% annual interest to invest in stocks that may or may not deliver such returns. It might even result in losses. And you might feel that there are no costs as you would pay credit card bill on time. But in case of loss (as we discussed in the example earlier), you might not be able to do it so easily.

If you really want to invest properly, its best to have a proper financial plan in place and invest regularly for all your financial goals in a systematic SIP-based regular investment approach.

So that was all about can you buy shares using credit card in India (2021).

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