Loan against Mutual Funds: Everything You Need to know
Author : Swaraj Swarajfinpro | Published On : 26 Apr 2024
Life throws curveballs, and sometimes you need some extra cash fast. Sure, you could break the piggy bank, but what if you've been diligently building wealth by investing in mutual funds? If you sell them prematurely then it can disrupt your long-term wealth-building journey and you might have to incur losses if the market is down.
But there is a solution.
Here's where a Loan Against Mutual Funds comes in like a lifesaver! Let's break down what it is and how it can benefit you.
Think of it like this: Your mutual funds are like a valuable painting hanging on your wall. A loan against mutual funds allows you to borrow money using those funds as collateral, without actually selling them. It's like taking a loan from the bank using your painting as security.
Loan against mutual funds are similar to other secured loans like
Here are some key benefits:
Access Cash Quickly: Compared to traditional loans, loans against mutual funds can be processed faster, getting the money you need in your hands sooner. Many NBFCs promise to transfer funds to your bank account in three easy steps. Fetch your portfolio, pledge funds, and get money.
Keep Your Investments Growing: Your mutual funds continue to grow while you repay the loan, potentially generating even more returns in the long run.
Lower Interest Rates: Typically, loan against mutual funds come with lower interest rates compared to other unsecured loans like personal loans.
Overdraft facility: Most providers charge interest on the funds that you withdraw.
No minimum requirement: There is no minimum CIBIl score requirement, bank statement, or employment status.
Now, before you rush out and take a loan against your mutual funds, here are a few things to keep in mind:
Loan-to-Value Ratio (LTV): There's a limit! Lenders won't give you a loan for the full value of your mutual funds. It will depend on the type of fund (equity or debt) and the lender's policy, but expect a limit of around 50-80% of the fund's value.
Market Fluctuations: Remember, mutual funds are subject to market ups and downs. If the value of your fund falls significantly, you might get a margin call, forcing you to add more cash or sell some of your funds to maintain the loan-to-value ratio.
So, please avoid loan against mutual funds when markets are at all time high.
Repayment Discipline: Missing loan payments can lead to penalties, impact your CIBIL score, and even the forced sale of your mutual funds to cover the debt.
How to apply for a loan against mutual funds?
You just need to register, check your credit limit, pledge assets, do KYC, and viola! Get funds instantly in your bank account.
Is a loan against mutual funds right for you?
Talk to a financial advisor! They can help you assess your situation, understand the risks and benefits, and determine if this strategy aligns with your overall financial goals.
Remember, a Loan Against Mutual Funds can be a helpful tool, but it's not a magic solution. Use it wisely and keep your long-term investment goals in mind!
