Quick Tips While Availing Instant Loan Against Your Mutual funds

Mutual Funds have emerged as one of the preferred methods of wealth generation. A loan against mutual funds helps you raise quick funds to meet your short-term liquidity needs simply by retaining your mutual fund investment as collateral. Loan against mutual funds is entirely a paperless and digital procedure. When individuals face unforeseen circumstances, they can conveniently avail loans against mutual funds without selling their investment. The major advantage of taking a loan against a mutual fund is that the interest on loan will be far less than personal loans or credit card loans.

You need to take into consideration a few aspects before availing a loan against mutual funds.

Eligibility: A large number of banks and NBFCs provide loans against mutual funds to companies, entities, investors, and firms, among others. If you are an individual investor, the minimum age for securing such loan is 18 years. Meanwhile, the loan amount, interest rate and tenure are decided by the respective bank or financial institution.

Terms of Loans: It is of paramount importance for investors availing loan against mutual funds to read the loan terms offered by NBFCs or banks. They must check the interest rate, loan tenure, charges, etc. They should also calculate the payback amount. It will also be ideal to compare the offers from other schemes to seize the best available deal.

Secured/Unsecured: It is important to note that loans against mutual funds are of two types namely secure and unsecured. Secured loans are backed by collateral like your mutual fund investments. Generally, secured loans have lesser interest rates but you may need to pledge a bigger part of your mutual funds as collateral.

Meanwhile, when it comes to unsecured loans, they are not backed by collateral. These loans bear similarity to credit card loans or personal loans. Banks charge a higher rate of interest on unsecured loans.

Documents: Individuals will also need to furnish key documents such as identity proof and ownership proof of the mutual fund investments when they decide to avail loan against mutual funds. Individuals may also be asked by the bank to give a copy of their bank statement, financial documents, and PAN card, among others.

Loan Repayment: It is significant for individuals seeking loans against mutual funds to check repayment clauses carefully. In a few situations, when individuals payback partial loan amount, that part of mutual fund units may become free from lien. When individuals take a loan against mutual funds, they may still earn dividends. If you fail to repay the loan on time, it may lead to the lender selling the mutual fund investments for recovery of loan amount.

Pledging of Mutual Funds: Individuals will be required to pledge their mutual funds as collateral with the lender against the loan that they plan to avail. As long as the loan amount is not repaid, the lender will have a lien on their mutual funds.

Therefore, when you decide to avail loan against mutual funds, do not forget to consider the pros and cons. It is also significant to evaluate your risk appetite and financial goals before making any decision.