Personally i find the option of taking a personal loan and investing in shares more practical. The repayment of the loan should not be dependent on the performance of the stocks bought from the loan. It should be comfortable service-able from other sources of income such salary. Therefore i would not have preferred loan against shares where the movement of share prices may bring in margin requirements.
I also think having an overdraft is a good way to leverage.here, only the interest is to be serviced. Since it is not a loan, principal repayment does not arise. even better – In case one has FDs he can keep it as security to take overdraft so that interest is lower. FDs remain as FD. Only interest difference between what you earn on the FD and what the overdraft carries needs to be paid. The overdraft can be partly or fully liquidated as and when one gets surplus funds. Or if required, from the FDs.
In gulf region where i am based interest rates are relatively low. I prefer to take a loan on my credit card for 6 months where i have to pay totally 2-3% extra over the loan amount in the form of charges/ intrest. My rationale is that over 6 months, if my investment is able to grow by 2-3% then i have broken even. I repay the loan in 6 months and am ready to take another if i feel the time is right. However i ensure that my leverage does not exceed 20% of my total PF value since that is my comfort threshold.
One drawback of taking a loan and front-ending the investment is that if your stocks fall during the loan tenor then you may not have as much surplus to invest because part of your income would already have been earmarked towards paying the principal. Here my 20% threshold helps because i retain some surplus saving every month from my salary to invest if stocks fall. In a total crash i would not be averse to pushing up my leverage to take advantage of the fall.
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