Life can be unpredictable and it is not uncommon to face temporary financial difficulties due to various reasons such as home renovation, weddings, or medical emergencies. The usual approach in such situations is to liquidate gold and real estate. This can be a more advantageous solution compared to selling investments at a loss.
Maximum Loan Amount from Banks for Mutual Funsavings or investments, but if that is not enough, people often resort to taking out a loan
What are the alternative loan options available other than selling your Mutual funds?
Instead of selling your mutual fund investments, you can opt for a loan against them. Banks and Non-Banking Financial Companies (NBFCs) offer loans against mutual fund holdings, just as they offer loans against other assets such as gold and real estate. This can be a more advantageous solution compared to selling investments at a loss.
What is the maximum loan amount available for mutual fund holdings?
Maximum Loan Amount Based on Mutual Fund Holdings.
When it comes to obtaining a loan using your mutual fund holdings as collateral, the amount you can borrow depends on the type of mutual fund you have invested in and the lender you choose. Banks such as HDFC and ICICI offer loans ranging from 50% to 80% of the Net Asset Value (NAV) for equity and debt mutual funds, respectively. Meanwhile, Axis Bank provides loans that can range from 60% to 85% of the value of your equity and debt mutual fund investments.
Which Banks Offer Loans Against Which Mutual Funds?
Not all banks provide loans against all mutual funds. Some banks have restrictions and only lend money against a specific set of mutual funds.
For example, SBI only offers loans against mutual fund schemes of SBI Mutual Fund. Meanwhile, HDFC Bank and ICICI Bank only offer loans against mutual fund schemes managed by asset management companies registered with Computer Age Management Solutions Private Limited (CAMS).
Similarly, Axis Bank has a list of specific mutual fund schemes on its website that it offers loans against.
What Are the Loan Amount Limits for Loans Against Mutual Funds?
Like any other loan, there are limits to the amount you can borrow against your mutual funds. Different banks have set maximum and minimum limits on the loan amount.For example, big private banks like ICICI Bank have set a minimum loan amount of Rs 50,000 and a maximum of Rs 20 lakh for equity mutual funds, and a maximum of Rs 1 crore for debt mutual funds.
When it comes to NBFCs, both the minimum and maximum loan limits are typically higher. For instance, Aditya Birla Finance has a minimum loan amount of Rs 25 lakh and a maximum of Rs 10 crore, while Bajaj Finserv has similar limits
What are the interest rate differences between loans against mutual funds and other loans?
Loans against mutual funds offer a lower interest rate compared to credit card loans or personal loans. This is because loans against mutual funds are secured, meaning they are backed by collateral. The interest rate for loans against mutual funds can range from 8-10% and may vary based on the bank and the chosen mutual fund schemes. Debt fund schemes typically have a lower interest rate while equity fund units have a higher interest rate.
Do you continue to earn returns on pledged mutual fund units?
Yes, you do. When you pledge your mutual fund units to secure a loan, the units remain invested in the market. The bank only has the right to sell the units in case of default. As long as you do not default, your investments will remain linked to the market and you will continue to earn returns on them. This allows you to raise capital quickly without disrupting your financial plan.
Can you apply for a loan against mutual funds online and get an overdraft limit set in your bank account?
Yes, some banks such as SBI, HDFC, and ICICI offer loans against mutual funds online. You can pledge your mutual fund units online and receive an overdraft limit in your bank account. An overdraft facility is a credit agreement that allows you to withdraw more money than what you have in your account, up to a pre-approved limit. For example, if you have Rs. 50,000 in your bank account and an overdraft limit of Rs. 2 lakh, you can withdraw up to Rs. 2.5 lakh. The bank will charge you interest for this overdraft facility.
Considering a Loan? Why a Loan Against Mutual Funds May be a Better Option than Credit Cards or Personal Loans.
When it comes to borrowing money, one option to consider is a loan against mutual fund units. This type of loan often comes with a lower interest rate compared to credit card loans or personal loans. However, it’s important to keep in mind that the interest rate on loans against mutual funds may still be higher compared to other options such as loans against gold or fixed deposits. It’s essential to weigh all the options before making a decision on which type of loan to take.