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

Noida real estate prices skyrocket in 3 yrs! Average growth rate surpasses Mumbai, other metros

In the post-pandemic period, property prices have risen exponentially across the top 7 Indian cities: Bengaluru, Pune, Hyderabad, NCR, MMR, Kolkata, and Chennai. Property rates in key micro markets of these cities have grown by as much as 128% between 2021-end and 2024-end, according to the latest data by ANAROCK Property Consultants. In the NCR

Noel Tata, Shireen and Deanna Jejeebhoy appointed to board of Ratan Tata Endowment Trust 

Noel Tata, Chairman of Tata Trusts, along with half-sisters of late Tata patriarch Ratan Tata, Shireen and Deanna Jejeebhoy have been appointed to the board of the Ratan Tata Endowment Trust (RTET), sources told Economic Times. Their appointments were made by the existing trustees, Pramit Jhaveri and Darius Khambata, sources confirmed. Further, the report stated

IREDA’s 5% jump: Rs 5,000 cr borrowing plan & 4 key factors after 35% slump

The stock market is buzzing with IREDA’s latest move – a Rs 5,000 crore borrowing plan that has sent shares climbing nearly 5% in today’s trading. But despite this short-term boost, the share price of the company has seen a steep decline of 35% year-to-date (YTD). Let’s take a look at the key takeaway that

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
0FollowersFollow
0SubscribersSubscribe
- Advertisement -

Latest Articles

Noida real estate prices skyrocket in 3 yrs! Average growth rate surpasses Mumbai, other metros

In the post-pandemic period, property prices have risen exponentially across the top 7 Indian cities: Bengaluru, Pune, Hyderabad, NCR, MMR, Kolkata, and Chennai. Property rates in key micro markets of these cities have grown by as much as 128% between 2021-end and 2024-end, according to the latest data by ANAROCK Property Consultants. In the NCR

Noel Tata, Shireen and Deanna Jejeebhoy appointed to board of Ratan Tata Endowment Trust 

Noel Tata, Chairman of Tata Trusts, along with half-sisters of late Tata patriarch Ratan Tata, Shireen and Deanna Jejeebhoy have been appointed to the board of the Ratan Tata Endowment Trust (RTET), sources told Economic Times. Their appointments were made by the existing trustees, Pramit Jhaveri and Darius Khambata, sources confirmed. Further, the report stated

IREDA’s 5% jump: Rs 5,000 cr borrowing plan & 4 key factors after 35% slump

The stock market is buzzing with IREDA’s latest move – a Rs 5,000 crore borrowing plan that has sent shares climbing nearly 5% in today’s trading. But despite this short-term boost, the share price of the company has seen a steep decline of 35% year-to-date (YTD). Let’s take a look at the key takeaway that

IIFL Capital put Add on Bajaj Finserv: 3 reasons why they see upside potential

IIFL Capital has reinstated coverage on Bajaj Finserv with an ‘Add’ rating and a 12-month target price of Rs 1,900 per share. This implies about 5% potential upside for the stock from current levels on the back of stong growth outlook. According to IIFL Capital, “the insurance subsidiaries are well-positioned to leverage on the structural

5 Cheapest Microfinance Banks in India

The microfinance sector has expanded rapidly over the years, narrowing the gap between financial inclusion and formal banking. Nevertheless, the industry had recently faced challenges too. The increase in bad loans, over-leveraging, and economic shocks placed lenders under pressure. Most microfinance institutions witnessed high delinquencies in the year gone by. The same resulted in steep