When you have a financial emergency and need cash, it might seem like a good idea to sell your mutual fund investments. But, this can harm your long-term financial plan. A better option is to get a loan using your mutual fund investments as collateral. This way, you can still keep your investments and get a loan by putting a lien on your mutual fund units.
Who is eligible for a Loan Against Mutual Funds?
If you have mutual fund investments, you can apply for a loan against them. This includes individual investors, Non-Resident Indians, firms, Hindu Undivided Families, trusts, companies, and other entities. But, minors are not able to take advantage of this option. The amount you can borrow, how long you have to repay the loan, and the interest rate will be determined by the bank or financing institution. They’ll consider factors like your credit score to determine these details. If you have a good credit score, you might be able to get a better interest rate.
How much Loan can be availed?
When it comes to taking a loan against your mutual funds, the amount you can borrow depends on the type of mutual funds you have. If you have equity mutual funds, you can borrow up to 50% of the net value of your assets. On the other hand, if you have fixed income mutual funds, you can borrow anywhere from 70-80% of the net value of your assets.
How to avail Loan against Mutual Funds?
If you need to take out a loan and you have mutual funds, you can use those as collateral. You can go to a bank or a finance company to apply for a loan against your mutual funds. Some finance companies even have an online application process that is fast and easy to use. You can get instant approval this way, and the lien marking of the units can also be done online through the mutual fund registrar’s records.
What are the costs associated with Loan against Mutual Funds?
When you take a loan against your mutual fund investments, you’ll usually get a lower interest rate than you would with a personal loan. This is because your mutual fund investments serve as collateral for the loan. Additionally, you might not have to pay much in processing or foreclosure fees, or these fees might even be waived entirely.
Here are a few things you should keep in mind when taking a loan against your mutual fund investments:
- If you pay back some of the loan, a part of your mutual fund units may be released from the lien.
- Remember that even though the lien is marked, your mutual fund investments will still earn dividends and increase in value.
- Once the bank or financial institution has marked the lien, you won’t be able to redeem the units.