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Loan Against Mutual Funds
- Updated on: 18 Sep 2024
- Published on: 29 May 2023
Secured loans, like a loan against mutual funds, often have lower interest rates. Choosing this lending option has twin benefits. One, you get to enjoy the loan for your desired purpose. Second, your investments continue to accrue interest undisturbed.
Considering these perks, you may wonder, ‘How can I get a loan against a mutual fund?’. Read on to find out.
Loans against mutual funds (MF) are credit facilities that offer funds when you pledge your mutual fund units as collateral. The bank holds your securities until the end of your loan repayment tenure. While you can continue to earn returns on your MF investments, you can’t sell these units until you repay the loan in its entirety.
Opting for loans against mutual fund investments is easier than ever before. Thanks to the online application process offered by most lenders, you can get this loan from the comfort of your home.
In most cases, you can simply apply for a secured loan and pledge your investments as security. In some cases, you may even be able to avail the overdraft facility. It is a pre-approved credit arrangement allowing you to withdraw more than what you have in your bank account by pledging your assets as collateral. The lender extends a line of credit, charging interest on the sanction you utilise.
Lenders offer lower interest rates on loans backed by collateral. As such, the interest rate on such loans is lower, making it better than unsecured loans.
Moreover, you get to enjoy a continuous flow of yield on your investments with these loans. Your assets are safe and your returns are unaffected throughout the loan repayment.
Most lenders have different eligibility criteria. However, there are some common requirements to get this loan. For instance, to enjoy this loan, you must qualify as any one of the following entities:
The lender decides on your loan amount, tenure and interest rate based on various factors, including:
The amount of loan depends on the following factors:
Banks provide a loan sanction from 50% to 60% of your equity holdings. On the other hand, you can get up to 80% to 85% of the net asset value (NAV) on your debt funds.
Lenders also set an upper limit on these loans. For instance, some lenders have set a limit of ₹10 crores that you can get as a loan against mutual funds. However, this limit can vary depending on the lender’s policy.
In case a secured loan isn’t accessible to you, you can always opt for the Fibe Instant Personal Loan. You can get funds up to ₹5 lakhs online at affordable rates. Simply download the Fibe Instant Loan App or visit the official website to get started.
While it depends on the lender, some of them disburse funds within 24 hours of your loan request getting approved.
Yes. The cost of borrowing a loan is lower compared to personal loans. Moreover, during the loan term, your earnings from the mutual fund investments remain unaffected.
The interest rate varies between 8% to 10% p.a., depending on the lender.
You can get a loan amount of about 50% to 60% of the market price of your equities. For debt securities, banks generally provide a loan amounting to 80% to 85% of its value.
Here are some pros you must be aware of:
It is one of the ideal options if you want to enjoy instant liquidity
