Investing in mutual funds is a smart idea. But what if we told you your mutual funds could work twice as hard and help you meet financial needs like high-value purchases, medical bills, etc? That, too, without forcing you to sell your mutual funds.
You read that right. You can, in fact, borrow funds by pledging your mutual fund units as collateral without having to liquidate your investments. This loan facility provides you instant access to funds while allowing your investments to continue generating returns.
This article explores the features, benefits, eligibility criteria, and process of availing a loan against mutual funds.
What are loans against mutual funds?
A loan against mutual funds allows investors to avail of a loan by pledging their mutual fund units as collateral with a lender. It is a loan facility offered by various financial institutions against the market value of an investor's mutual fund holdings.
Features of loans against mutual funds?
Some key features of a loan against mutual funds are:
1. Lien marking facility: The investor has to contact the mutual fund house and request for a lien to be marked on the mutual fund units in favour of the lender providing the loan. This lien transfer request has to be signed by all the unit holders.
2. Instant loan processing: Once all documentation is completed, the loan processing is done instantly, and funds are disbursed into the investor's account. This makes it an ideal option to meet urgent financial needs.
3. Eligibility of both debt and equity funds: Units of both debt and equity mutual funds are accepted by lenders as collateral for availing a loan against mutual funds.
4. Loans for first-time borrowers: These loans are extended even to first-time borrowers who may not have any credit history.
5. Loan amount: The maximum loan amount provided depends on the type and value of mutual fund schemes pledged. This limit varies from one lender to another.
What are the benefits of loans against mutual funds?
Here are the benefits of loans against mutual funds:
1. Instant and convenient access to funds: One of the biggest advantages is the quick and convenient access to funds through online processing. The loan can be availed instantly by pledging mutual fund units and setting an overdraft limit. This saves time compared to traditional loan processing.
2. Flexible interest payment: The interest on the loan has to be serviced monthly by crediting the loan account. However, interest is charged only on the utilised loan amount rather than the entire sanctioned amount. This makes the interest cost flexible.
3. Faster availability compared to other loans: The funds from a loan against mutual funds can be credited within a day compared to the longer waiting periods for other loans. This makes it ideal for urgent needs.
4. Lower interest rate: The loan against mutual funds interest rate is lower than interest rates on other loan options like personal loans and credit card loans. This results in lower EMIs and greater affordability.
5. No liquidation of funds required: One of the biggest benefits of a loan on mutual funds is that the investor can avail of a loan without having to liquidate or redeem their mutual fund investments. The units remain in the investor's demat account.
The below mentioned eligibility, documents requirement and application process may change from vendor to vendor and from time to time.
Loan against mutual funds eligibility criteria
The following investors are eligible to avail a loan against mutual funds:
1. Indian residents who are above 18 years of age can avail this loan.
2. Partnership firms, private trusts, and private and public limited companies who invest in mutual funds can avail of a loan against their mutual fund units.
3. There are no restrictions on the profession or nature of business for eligibility. Salaried individuals, self-employed professionals, etc., are eligible.
4. There is no minimum income requirement for availing of this loan.
Documents required for loans against MF
The following documents are required by lenders to avail a loan against mutual funds:
1. PAN Card
2. Proof of identity (Aadhaar card/Passport/Driving License/Voter ID)
3. Proof of address (Aadhaar card/Passport/Driving License/Voter ID)
4. Signature verification (PAN card/Passport/Banker's verification)
Application process for loans against mutual funds
The process of applying for a loan against mutual funds is straightforward:
1. If the mutual fund units are held in physical/statement form, they need to first be dematerialised into electronic/demat form to pledge them for the loan.
2. Investors can apply online for a loan against mutual funds through the lender's online facility after logging into their account. The online application process and paperless approval make availing of a loan against mutual funds quick and convenient for investors.
3. The lender will verify the investor's details, mutual fund portfolio and eligibility.
4. After the application is approved by the lender, the loan processing will commence.
5. The lender will request the mutual fund registrar to mark a lien on the specific units that are being pledged against the loan.
6. The registrar sends a lien confirmation letter to the investor with a copy marked to the lender mentioning the units against which the lien has been created.
7. After completion of all documentation and lien marking, the loan amount sanctioned gets credited to the investor’s account.
Discover Tata Capital’s loans against securities
A loan against mutual funds is an efficient way for investors to meet their short-term liquidity needs without having to redeem their fund investments prematurely.
Tata Capital is a trusted source to avail of loans against securities. We offer attractive loans against securities interest rates to help make them affordable. The loan can be availed against shares, mutual funds and other securities.
The documents required for a loan against securities are simple and include ID/address proof, PAN card and securities statement. Lastly, borrowers can also determine the appropriate monthly instalments using the loan against securities EMI calculator.
Tata Capital provides customised solutions to meet financial requirements while allowing investors to retain their assets. For more details, visit the Tata Capital website or download the Tata Capital App today!
11 March 2024
6 mins read
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