Is it possible to invest in stocks using a credit card?

When 23-year-old software engineer Rahul Sharma received his first credit card with a Rs 5-lakh limit, he saw it as an opportunity to jumpstart his investment journey in the stock market. Like many young Indians riding the digital trading wave, the temptation to use readily available credit for potentially high returns seemed irresistible. Let us understand if it is possible to invest in stocks with a credit card?

 

“Investing in the stock market using a credit card is not permitted in India as stock brokers are mandated by Sebi to only accept money through a customer's savings account. SEBI’s regulations and compliance frameworks are designed to safeguard investors and prevent risky financial behaviours,” said Prashant Kumar, founder and CEO, Kredit.Pe.

 

 

“Using borrowed funds, like cash withdrawal from credit cards or personal loans, to invest can lead to severe financial consequences due to high-interest rates and market volatility. Even if someone claims to provide a way to do so, it is crucial to recognise that such methods are against regulatory standards,” Prashant said.

 

Technically you can take a credit card cash advance to invest, this would be extremely risky. Let us understand.

 

Risks of using credit cards for investment

 

Investing with borrowed money is inherently risky, and using a credit card amplifies these risks due to high-interest rates and potential penalties. Here are some key risks associated with this approach: 

 

High-interest rates: Credit card interest rates in India can range from 13 per cent to 48 per cent, which can quickly erode any gains made from investments. If an investor fails to pay off their balance in full, they may find themselves facing substantial interest charges.

  Debt cycle: There is a significant risk of falling into a debt cycle if investments do not perform well. For instance, if an investor buys stocks worth Rs 100 on credit and their value drops to Rs 60, they not only incur a loss on the investment but also face the obligation to repay the original amount plus any accrued interest.

 

Impact on credit score: Failing to manage credit card payments responsibly can negatively affect an individual's credit score, making future borrowing more difficult and expensive.