Loan Against Mutual Funds

Loan against mutual funds,

Investing in mutual funds can help secure capital for future goals and expenses. However, when facing the need for urgent finance, investors are likely to liquidate their mutual funds. This can adversely impact your investment plan, as you end up with lower returns than anticipated.

A better option is to take a loan against your mutual funds, so you can access a corpus of funds, without losing out on the ownership of your investment. It helps you to access a corpus of funds, without losing out on the ownership of your investment in mutual funds.

Benefits of borrowing loan against mutual funds

  1. This is a very good way to quickly raise capital for short-term financial requirements if you think your investment in the mutual fund is lying idle. 
  2. The interest rates for a loan against mutual funds are generally lower than that for personal loan interest rate. 
  3. Though lien is marked on the units, so the investor continues to earn dividends from the units of the mutual fund. 
  4. It is a good way to receive instant liquidity against your investment in mutual funds. 

Eligibility criteria for loan against mutual funds

  • You must be at least of 21 years.
  • Residential citizen of India.
  • The minimum value of your securities should be 10 Lakh.
  • You must be a salaried or self-employed professional with a regular source of income.

Documents required

  • Passport size photo
  • ID proof
  • Aadhar card
  • Document proof of securities.

How to apply for loan against mutual funds 

First, a current account is opened with an overdraft facility. The investor can avail the overdraft facility up to the value borrowing limit set for the account on the basis of the collateral mutual fund units.

Then the investor must fill up the application form for marking a lien providing the details like 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 i.e, to mark a lien on the number of units being pledged.

The registrar then marks the lien and sends a letter to the lender with a copy to the borrower confirming the lien.

Conclusion – Loans against mutual funds are quite a rare practice in India due to lack of awareness and information on the subject.

So, in a nutshell, next time you think of alternative ways of raising an emergency capital, remember that a loan against your mutual funds can be a better option than other traditional instruments.

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