MF investors usually invest their money intending to achieve their medium- to long-term goals. If they experience a sudden need for funds, they may end up redeeming their investments. Unfortunately, this might disrupt the overall objectives. An alternative solution could be to take out a loan against mutual funds, wherein your assets remain secure as the lien is put on MF units.

Taking a Loan against Mutual Funds is an effective way to unlock the value of your investments and get access to liquidity without incurring any tax liabilities. It can provide you with the necessary funds for various purposes, such as home renovation, business expansion, or even funding your child’s education.

The formula for success in taking a loan against stock investments and mutual funds is simple – research, compare different loan options, and choose the most suitable one that fits your needs. Before taking a loan against mutual funds, it is crucial to understand your eligibility, process, benefits, and cost associated with the loan. It will help you make an informed decision that will benefit you in the long run.

Eligibility criteria

Anyone 18 or above with investments in mutual funds can apply for a loan against securities. Nonetheless, the approval and disbursal are subject to certain conditions and criteria defined by the bank or lending institution. 

While the credit limit depends on the value of MF units in your portfolio, the EMI plan you choose determines the interest rate, which may vary from lender to lender. Some banks/NBFCs check the borrower’s credit score before sanctioning the loan against securities. A higher score secures a better negotiating position for a lower interest rate. Also, some institutions, including Abhi Loans, do not check credit history. It is worth noting that equity MFs and Debt MFs offer different percentages of their value as a loan. Abhi Loans, for example, offers 65% LTV for equity MFs and 75% LTV for debt MFs.

The process of borrowing

If you are looking to take a loan against mutual funds, you need not head to a bank or NBFC. Applying for a loan is now easier than ever with the introduction of online applications. Many lenders provide the convenience of applying for a loan online, which saves time and effort. Not only do they offer competitive rates and flexible payment options, but they also provide personalized advice to help you get the best deal. The online application allows you to apply quickly and easily from anywhere, at any time. The ease of application and fast processing make a loan against securities a simple formula for success for MF investors.

Pros of borrowing against mutual funds

Borrowing against mutual funds can be an excellent strategy for investors looking to maximize their returns. By leveraging their existing mutual fund investments, investors can access additional capital without the need to sell off any of their holdings. It allows them to remain invested in the market and benefit from future potential gains. Additionally, a loan against securities comes with a lower interest rate than other forms of borrowing, making it an attractive option for those looking to manage their financial resources responsibly. Plus, it saves you from capital gain and other taxes, which you would have otherwise paid if you had redeemed your MF units.

The cost and other charges involved

Taking out a loan against mutual funds is more beneficial than getting a personal loan as it has a much lower interest rate and minimal processing fees, ranging from 0.50% to 2%, excluding GST. As for foreclosure charges, some lenders take it while others, including Abhi Loans, do not.

Wrap up

The factors above conclude that a loan against mutual funds is an attractive option for many investors looking for short-term liquidity. While the process is easy and quick, the charges applied are a bare minimum, which makes borrowing against MF units a simple formula for success.