Policies, Codes & Other Documents
There are situations in life where you might experience unforeseen problems financially, like medical emergencies, family expenses, etc. In such cases, there is often an urgent requirement for cash or for using your savings. However, there are better alternatives for seeking loans, even in such cases. Getting a loan against mutual funds is one of the alternatives.
By getting a loan against mutual funds, you need not encash or redeem your investments. Loans against securities help you quickly raise funds for your requirement. Interests are charged on the amount utilised based on the tenure for which the loan is taken. An interest rate of 7-15% p.a on loans against Mutual Funds will be charged based on the bank and tenure. You can get loans against MF holdings from banks and non-banking financial companies (NBFCs).
Let us briefly understand Mutual Funds before diving into loans against mutual funds.
Mutual Funds are an investment avenue where people invest in securities like stocks, bonds, money market instruments, or other assets. An organized institution manages the money - professional money managers allocate the assets and produce capital gains for the investors. They invest in several securities like portfolios of equities, bonds, etc. Mutual funds always depend on the performance of the securities in which they are invested. The price of an MF share is known as the Net Asset Value per share (NAVPs).
Apart from the funds mentioned above, we also have mutual funds such as money-market, income, global, speciality, and exchange-traded funds.
When you acquire a loan against MF, the amount of loan you get depends on the type of mutual fund schemes you have invested in and the financial institution from which you will borrow. The mutual fund units are utilized as collateral while applying for a loan against securities. The banks will keep the mutual fund units in their custody as collateral until the loan debts are repaid. However, the mutual funds will continue to remain invested. Once the loan is paid off, the fund house will release the lien to the financier.
In case of a default in payment, the bank will reinforce the lien and instruct the mutual funds to redeem the units, thereby settling the value of the mutual fund investment against the loan amount.
It is crucial to understand the advantages before availing of a loan against mutual funds. Here are some of them:
If you own funds in physical form, then there are these options:
The following lists down the loan against mutual funds eligibility:
Hence, verifying the loan against mutual fund eligibility is essential to examine if the candidate fits the criteria.
Loans against mutual funds involve using the pledged funds to claim loans. Some benefits include paying only interest payments, flexible prepayments, lower monthly payments, and shorter loan tenure. The amount or rate of interest may vary depending on the type of mutual fund or the mutual fund company. Opting for a loan against securities allows the borrower to utilise the funds disbursed effectively. It is considered a wise choice.
Loans against mutual funds are a better alternative than a credit card or a personal loan. The interest rate on loans against mutual funds is lower than for loans against gold or FDs (fixed deposits). So if you are looking for a loan against securities, visit Tata Capital and apply for a loan against mutual funds today!
Policies, Codes & Other Documents