Loan against Mutual Fund
As a result of the increasing financial awareness, people have started exploring ideal investment options. Since a mutual fund offers high returns at comparatively lower risk, its popularity has increased significantly in recent years. Moreover, mutual fund investors can also avail credit against their mutual fund investments.
Below are some of the major benefits of availing a loan against mutual fund.
- In case of loan against mutual fund, the interest is charged only on the amount availed as credit. Also, loan against mutual fund is a secured loan and hence, the interest rate will be much lower than that of an unsecured personal loan. If you have a good credit score, financial institutions might agree to lower the interest rate even further.
- Loan against mutual funds is a good way to instantly raise capital for short-term financial requirements
- While availing a loan against your mutual fund units, you would not have to sell your units. This keeps your fund ownership intact.
How to apply for Loan against Mutual Funds?
- You can easily avail loan against mutual funds through various online portals if you have the mutual fund units in the demat form. In case you hold units in the physical form, you would require a loan agreement with the financial institution.
- The application process involves marking of lien on the mutual fund units in favour of the financial institution. Once lien is marked, the mutual fund units cannot be sold or redeemed by you.
- You must fill up the application form for marking a lien providing the details such as folio number, scheme name, plan, option and the number of units. Once the documents are received, these are forwarded to the mutual fund registrar for lien marking.
- A lien can be revoked and the collateral can be released in your favour only if the lender confirms the same in writing. If you fail to repay the loan, the lender can invoke the lien and can seek redemption of units under lien, to recover the loan.
- You can avail overdraft facility up to the value borrowing limit set for the account on the basis of the collateral mutual fund units.
Availability of Loan against Mutual Funds
In case of loan against mutual funds, the loan amount that you can borrow depends on the type of mutual fund you own. For example, equity-based funds can fetch you approximately 50% of the Net Asset Value of your funds. Some lenders also have a maximum and minimum cap on the loan amount that you can apply for.
Leading banks and other NBFCs have flexible personal loan eligibility criteria and minimal documentation process for loan against mutual funds. Furthermore, they also provide you the assistance of a dedicated relationship manager to resolve all your loan and mutual funds-related queries.
Since liquidating your mutual funds can significantly hamper your investment plan, you should consider availing loan against mutual funds. So now that you know what is loan against mutual funds, you can make optimum use of it to avail instant money.