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hello friends today we will talk about a concept called haircut in finance this term is most commonly used to describe the percentage difference between an assets value and amount that can be used as a collateral for loan lets take an example to understand this lets say x wants to get a loan of 1 lakh rupees and he owns shares with a market value of 1 lakh 50 000 and bank applies a haircut of 50 so bank will apply that 50 on the value of shares which is one like 50 000 and x will be eligible for a loan of only seventy five thousand rupees by pledging shares worth one like fifty thousand so lets see why haircut is applied in this example bank is giving a loan of seventy five thousand rupees against shares which have a market value of one lakh fifty thousand rupees so in case there is a fall in value of shares because of market fluctuation bank is still protected as long as it is able to recover at 75 000 rupees by selling the shares therefore haircut is applied as a security as a mar