Most of the mutual fund investors set medium-to-long-term goals when making investments. The mutual fund investments help the investors to build a corpus fund with regular investment of small amounts over a period of time or a lump sum amount for a particular period. Do you know that you can also secure a loan against your mutual fund investments?
The banks and non-banking financial companies (NBFCs) are providing loans against mutual funds. The mutual fund investments work as a collateral and you can get a secured loan against your mutual fund assets.
The loan against mutual fund investments could come at a lower interest rates compared to the unsecured loans. However, before applying for the same, here is all the information you need to know:
Eligibility
Loans against mutual fund assets are available to NRIs, firms, HUFs, trusts, companies and individual investors. The banks or the NBFCs decide the loan amount and interest rate based on a number of variables, including the applicant’s credit score. The applicant with a higher credit score can negotiate for a reduced interest rate. For stock mutual funds, loans up to 50% of net asset value may be obtained. One may obtain a loan amount of upto 70% to 80% of the total asset value of a fixed-income mutual fund.
Process
The investor can go to a bank or NBFCs and ask for a loan on mutual funds. Numerous finance companies also offer online applications that streamline the entire process and provide instant loan approval.
Costs
Given that there is collateral involved, the interest rate for loans secured against mutual funds is generally cheaper than that of a personal loan. Processing or foreclosure costs are negligible or not charged at all in some cases. The type of mutual fund scheme you have invested in and the financial organisation from which you will borrow will both have a significant impact on the amount of loan you can obtain against your mutual fund assets. Mutual fund units may become free from liens as the loan amount is repaid.
Many banks may offer loans against selected mutual funds
Many banks and NBFCs offer loans against selected mutual funds or their own mutual fund instruments. For instance, SBI only provides loans in exchange for SBI Mutual Fund plans. Both HDFC Bank and ICICI Bank are selective about the mutual funds against which they offer loans. Loans are available from both of these private banks for mutual fund plans run by asset management firms registered with Computer Age Management Solutions Private Limited (CAMS).
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