Important Tips to Help You Qualify For Loan Against Mutual Funds

Are you looking for a loan to fulfill many financial needs of your life? If you have a fixed deposit account, you can easily avail a loan against fixed deposit keeping it as collateral!

Yes, leading online lenders can offer you a lower interest rate on loan against mutual fund. Want to know more details and how to avail it? Let’s provide you some vital inputs.

When it comes to investment options in India, mutual funds are one of the most sought-after investment tools. People consider it feature-rich and a higher ROI provider. Nonetheless, mutual funds are last resort for people looking to avail a loan against it.

Either people are unaware or don’t want to utilize the option, and that’s when it’s known that the mutual funds could be kept as collateral to avail an affordable loan. The fact is a loan against mutual funds could be availed just like a loan against fixed deposits from banks and NBFCs.

How a Loan Against Mutual Funds Works?

Mutual funds are an asset that you can utilize just like other assets as a loan against them are easy to avail. It works by letting an investor apply for a loan while keeping or pledging his/her mutual funds. The lender does its part – research about your CIBIL/Credit score, assess your unit’s worth and determine loan eligibility and amount.

A loan amount that could be provided depends on mutual funds’ value to be used against the loan. Generally, a loan against mutual funds amount could be up to 60-70% of the pledged value of the mutual funds at the time of application. A lender will also put a lien on the pledged units of the mutual funds. The lien is offered to banks and NBFCs to sell and recover the loan money in the event of repayment defaults.

Vital Points for Investors to Look

  • An investor can pledge or keep only those mutual fund as collateral that does not come with a lock-in period – units that could be easily transacted. It means that mutual funds with a lock-in period like a tax saving mutual funds or ELSS can’t be utilized for availing a loan.
  • It is always tempting to keep your mutual funds as your collateral or security while availing a loan; it is good to do it only and only when needed. Availing a loan against mutual funds should be avoided to purchase luxury items and must be used only during an emergency.
  • Mutual funds are invested in to earn good ROI over a longer period and to fulfil many needs and goals. Hence, availing a loan for unnecessary purposes should be avoided as its equal to losing your future security.
  • If you default on the loan amount, there are higher chances of losing your invested money in a flash.

The Bottom Line

You just went through some of the vital points of availing a loan against mutual funds. However, should you have urgent need, you should use it then only. Otherwise, you should ensure to make some alternative arrangement for money if you need it.

It’s always a better option to ask for money from friends and family or avail a loan against fixed deposits. Opting for these will be less risky and cheaper. Considering a personal loan from banks are another option that one could think of.

If you are all set to apply for a loan against mutual funds, you can apply for it online these days!     

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Comment by Jeorge Waters on November 15, 2018 at 7:16pm

When it comes to different financial issues, I just can't figure things out. It's too complicated for me and I can't do anything about it. Even when I needed to take a loan, I've spent the whole day to find out what should I do. Luckily, I managed to find idaho payday loan online service so the problem was solved.

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