Loan Against Mutual Funds: Eligibility, Interest, Process And Other Details

Most of the mutual fund investors establish medium-to-long-term goals while making investments. The mutual fund investments assist the investors to establish a corpus fund with recurring investment of modest sums over a period of time or a lump sum amount for a specified term. Loans backed by mutual fund assets may have cheaper interest rates than unsecured loans. MF investors usually invest for the medium to long term. When faced with an unexpected financial necessity, investors tend to redeem assets. This, however, disrupts the path to achieving goals. They should instead get a loan secured by their investments. The investment is preserved in this case since the loan is obtained by registering a lien on mutual fund units. Here are the eligibility, here is all the details you need to know:

Eligibility

Loans against mutual fund assets are available to individual investors, NRIs, businesses, HUFs, trusts, corporations, and other entities. Minors are not permitted. The bank/financing institution determines the loan amount, length, and interest rate based on a variety of criteria, including the applicant's credit score. A better credit score may assist the applicant in negotiating a cheaper interest rate.

How much loan can be availed?

In the case of equity mutual funds, loans of up to 50% of the net asset value are available. Loans of 70-80% of net asset value are available for fixed income mutual funds.

Process

The investor might approach a financing organisation or bank and seek a loan against mutual funds. Numerous finance businesses also offer online applications that streamline the entire procedure and provide fast approval. Unit liens are also marked electronically using the mutual fund registrar's records.

Costs

Because there is collateral, the interest rate for a loan against mutual funds is lower than for a personal loan. Processing or foreclosure costs are reduced or waived.

Points to remember

• If a portion of a loan is returned, that proportion of mutual fund units may be released from lien.
• While the lien is indicated, mutual fund investments continue to receive dividends and increase.
• These units cannot be redeemed by the investor after the lien is indicated in favour of the bank/financial institution.