Loan Against Mutual Funds: How it works & what you should know

Investing in mutual funds can significantly contribute to wealth accumulation over time. Interestingly, these investments can also serve as collateral for securing a loan. Lenders may consider your mutual fund holdings as a guarantee, allowing you to obtain loans at competitive interest rates. Prior to approving the loan, lenders will evaluate the value of your investments.

Numerous banks and financial institutions provide loans against mutual funds, enabling you to access necessary funds without liquidating your investments. This approach is an effective strategy for addressing immediate financial requirements while preserving your long-term investment objectives. Let us explore the concept of a loan against mutual funds and the appropriate circumstances for applying for one.

What Is a Loan Against Mutual Funds?

A loan against mutual funds (LAMF) is classified as a secured loan, where your mutual fund units serve as collateral. The lender disburses funds based on the assessed value of your mutual fund assets. Notably, you can continue to earn returns on your investments even after they have been pledged. Typically, banks and non-banking financial companies (NBFCs) offer loans against both equity and debt mutual funds. However, the specific terms and loan-to-value (LTV) ratios may differ based on the type of mutual fund involved.

Also Read: Should you withdraw or reinvest your matured investments?

How Does a Loan Against Mutual Funds Work?

A loan secured by mutual funds operates by using your mutual fund units as collateral to obtain financing from a bank or a non-banking financial company (NBFC).

According to Adhil Shetty, CEO of Bankbazaar.com, the process begins with applying for the loan from a lender that provides this option. “After you submit the necessary documentation, the lender establishes a lien (a legal claim) on your mutual fund units, which restricts you from selling or redeeming them until the loan is fully repaid. The amount of the loan granted is contingent upon the type and valuation of the mutual fund units,” he says.

Typically, lenders may offer up to 50% of the value for equity mutual funds and between 70% to 80% for debt mutual funds. Once the loan is approved, the funds are directly deposited into your bank account.

You have the option to repay the loan through equated monthly installments (EMIs) or as a single payment, based on the lender’s conditions.

 » Read More

Related Articles

Bajaj Finserv to explore listing of insurance firms

After acquiring Allianz’s 26% stake in Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance for Rs 24,180 crore, Bajaj Finserv is planning to explore listing of its insurance ventures. Sanjiv Bajaj, chairman and managing director of Bajaj Finserv, said there was a regulatory nudge for listing of larger insurance companies. The boards of the

Price collusion: CCI raids ad giants, broadcasters’ body

The Competition Commission of India (CCI) on Tuesday raided the offices of media agencies, including GroupM, Dentsu and IPG Mediabrands, as well as the Indian Broadcasting and Digital Foundation (IBDF), an apex body of broadcasters, over alleged fixing of ad rates and discounts, industry sources told FE. The action comes ahead of the 18th edition

Bulls return to D-Street: Markets surge as global indices gain

After over a week of consolidation, Tuesday was a breakout day for the benchmark indices, which clocked around 1.5% growth on the back of good news on both global and domestic fronts. While the softer-than-expected US retail sales data fuelled hopes globally that the Federal Reserve could consider rate cuts, India’s lowest trade deficit in

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
0FollowersFollow
0SubscribersSubscribe
- Advertisement -

Latest Articles

Bajaj Finserv to explore listing of insurance firms

After acquiring Allianz’s 26% stake in Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance for Rs 24,180 crore, Bajaj Finserv is planning to explore listing of its insurance ventures. Sanjiv Bajaj, chairman and managing director of Bajaj Finserv, said there was a regulatory nudge for listing of larger insurance companies. The boards of the

Price collusion: CCI raids ad giants, broadcasters’ body

The Competition Commission of India (CCI) on Tuesday raided the offices of media agencies, including GroupM, Dentsu and IPG Mediabrands, as well as the Indian Broadcasting and Digital Foundation (IBDF), an apex body of broadcasters, over alleged fixing of ad rates and discounts, industry sources told FE. The action comes ahead of the 18th edition

Bulls return to D-Street: Markets surge as global indices gain

After over a week of consolidation, Tuesday was a breakout day for the benchmark indices, which clocked around 1.5% growth on the back of good news on both global and domestic fronts. While the softer-than-expected US retail sales data fuelled hopes globally that the Federal Reserve could consider rate cuts, India’s lowest trade deficit in

EXPLAINER | Why are FPIs exiting India?

By Ankit Mandholia The withdrawal of foreign portfolio investors (FPIs) from Indian markets is driven by a complex interplay of global economic trends, geopolitical uncertainties, monetary policies, and domestic factors. Since sustained outflows could pose challenges to market stability, it is important to ensure that there is macroeconomic stability to enhance the competitiveness of Indian

SIP portfolio down by 20-30 pc in current market crash? Here’s how to recover

The market scenario can change completely in just a few months. Till September 2024, the Indian stock market was making new records every day. But since then, the situation has changed. Nifty 50 is down by about 14% from its peak. Similarly, the Nifty Midcap 100 has fallen by more than 18% in the last