Loan against mutual funds can be cheaper than personal loan.
For Stock Mutual Funds, loan can be availed up to 50% of the Net Asset Value.
Most mutual fund investors set medium to long term goals while investing. Mutual Fund investments help investors to build a corpus fund with regular investments of small amount over a period of time or lump sum amount for a particular period. Do you know that you can also secure a loan against your mutual fund investments?
Banks and non-banking financial companies (NBFCs) are providing loans against mutual funds. Mutual fund investments act as collateral and you can get a secured loan against your mutual fund assets.
Loans against mutual fund investments can be availed at lower interest rates as compared to 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 for NRIs, firms, HUFs, trusts, companies and individual investors. Banks or NBFCs decide the loan amount and interest rate based on several variables including the credit score of the applicant. An applicant with a high credit score can negotiate for a lower interest rate. For Stock Mutual Funds, loan can be availed up to 50% of the Net Asset Value. One can avail loan amount ranging from 70% to 80% of the Net Asset Value of Fixed Income Mutual Funds.
Process
An investor can approach a bank or NBFC and seek a loan against mutual funds. Many finance companies also offer online applications which streamline the entire process and provide instant loan approval.
Cost
Given that collateral is involved, the interest rate for a loan secured against mutual funds is usually cheaper than that of a personal loan. Processing or foreclosure costs are negligible or in some cases not charged. The type of mutual fund scheme you have invested in and the financial organization you will borrow from, both will have a significant impact on the amount of loan you can avail against your mutual fund assets. The mutual fund units can be free from lien as the loan amount is repaid.
Many banks may offer loan against selected mutual funds
Many banks and NBFCs offer loans against selected mutual funds or their own mutual fund instruments. For example, SBI offers loan against only SBI Mutual Fund schemes. Both HDFC Bank and ICICI Bank are selective about the mutual funds against which they offer loans. Loans from both these private banks are available for mutual fund schemes run by asset management firms registered with Computer Age Management Solutions Pvt Ltd (CAMS).
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