"Mutual fund sahi hai" Undoubtedly mutual funds are one of the best investment tools for anyone looking to grow their money. A mutual fund allows you to start your investment journey without much expertise and with an amount as low as ₹100.
You are no longer required to liquidate the mutual funds as it not only offers you to grow your money but also permits you to get a short-term loan.
Various loan providers give loans against mutual fund investments to fulfill your money needs while growing your money.
You can get a loan against the mutual fund by keeping your mutual fund units collateral with the loan provider. It also allows retaining all the returns and dividends on your investment.
Let's understand the eligibility, process, loan limits, and interest rates on the loan against the mutual fund portfolio before applying for the loan.
Anyone above 18 years of having a mutual fund corpus is eligible to get a loan, but every bank or loan provider has its set of rules to check eligibility.
Usually, providers only allow individuals to apply for a loan against the equity fund, whereas in the case of debt funds companies, sole properties and HUFs can also apply for the loan.
Loan providers decide different loan limits on different mutual fund schemes, in the case of equity usually, the limit is up to 50% of your net asset value whereas you can get a loan limit of 80% on NAV in debt schemes.
Internal policies of loan providers play an important factor in deciding the loan limit.
Fee and charges
The interest rate on a loan against a mutual fund is less in comparison to a personal loan. The interest rate on the loan can be anywhere around 9.25% to 18% depending on various factors and the loan provider, though you negotiate the interest rate with providers.
Loan providers also charge processing fees of 0.5% to 1% of the loan limit.
How does it work
Getting a loan against the mutual fund consists of 3 basic steps, which start from deciding the loan limit against your corpus, then you pledging your units against the loans to the provider, and you get the loan. Whereas the provider has the right to sell the pledged units in case of failures in the loan repayment.
How to access the money
You can apply offline or online for the loan. Loan providers prefer offering the loan in the form overdraft limit, which also has the benefit of interest will be charged on the used amount. Whereas a few providers also authorize the regular loan.
The decision still needs analysis and depends on various factors. Also, the speed of loan disbursal is important before choosing the loan provider. At least now you have the alternative of getting a loan against the mutual fund instead of liquidating the mutual fund portfolio. Choose smartly and make a wise decision with your money.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com