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

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

Retirement Homes: A stable income source with long-term benefits

In the career of a professional, there inevitably comes a time when they must step away from their workplace responsibilities. Approximately twenty-five years ago, as individuals approached retirement, many contemplated the prospect of securing their own residence. However, the landscape shifted at the dawn of the 21st century. The introduction of affordable home loan options

2 Stocks with aggressive traits from William O’Neil India’s Dream 11 picks

Building a successful portfolio can be challenging. However, there is no better time to create one than during a market carnage, when stocks are cheap. However, again, knowing what to buy is tough. So, we have done the work for you and are sharing two stocks worth watching in this market. Mayuresh Joshi of William

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
0FollowersFollow
0SubscribersSubscribe
- Advertisement -

Latest Articles

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

Retirement Homes: A stable income source with long-term benefits

In the career of a professional, there inevitably comes a time when they must step away from their workplace responsibilities. Approximately twenty-five years ago, as individuals approached retirement, many contemplated the prospect of securing their own residence. However, the landscape shifted at the dawn of the 21st century. The introduction of affordable home loan options

2 Stocks with aggressive traits from William O’Neil India’s Dream 11 picks

Building a successful portfolio can be challenging. However, there is no better time to create one than during a market carnage, when stocks are cheap. However, again, knowing what to buy is tough. So, we have done the work for you and are sharing two stocks worth watching in this market. Mayuresh Joshi of William

Personal Income Tax: Guess how much of govt’s direct tax revenue comes from you!

Do you think that the biggest income of the government comes from corporate tax? If yes, then these figures may surprise you. A large part of the government’s direct tax collection comes from personal income tax, while the growth of corporate tax has lagged in gaining momentum. How much is the government earning from personal

IRCON International rallies 9% today. Here’s why…

IRCON International’s share price jumped 9% to an intra-day high of Rs 150.40 on the National Stock Exchange. The surge in the stock price came after the company received a contract almost worth Rs 1,100 crore from the Government of Meghalaya.  The contract needs to be completed within 36 months. “It is to inform that