Mutual Funds have emerged as the most popular investment instruments across the globe. Notably, mutual funds are likely to deliver good returns and diversification advantage. However, investors are unaware that loans against mutual funds can work out. Borrowing from Mutual fund investments is a prudent idea as it unlocks liquidity for investments while not disturbing the related investments. With the development of technology, this process has become more convenient than ever, even becoming an online loan app process. Here is a step-by-step guide on how to get a loan against mutual funds online.
Understanding Loans Against Mutual Funds
A loan against mutual funds is a secured loan wherein your mutual fund units are pledged as collateral to a lender. The loan amount depends on the current value of your mutual fund portfolio and the loan-to-value, or LTV, ratio, which varies between lenders. Usually, equity funds offer a lower LTV ratio (up to 50%) than debt funds (up to 80%).
This type of loan is ideal for short-term financial needs as it usually comes with a lower interest rate than personal loans. Further, your mutual fund investments continue to earn returns so that your wealth-building process remains intact.
Benefits of Taking a Loan Against Mutual Funds
No Liquidation of Investments: You do not have to sell your mutual funds to meet urgent financial requirements.
Lower Interest Rates: As compared to unsecured loans like personal loans, interest rates are relatively lower.
Faster Disbursement: Since the loan is secured, lenders process it faster.
Continued Returns: Your investments remain active and continue to grow.
Steps to Get a Loan Against Mutual Funds Online
1. Choose the Right Lender
The first step is to select a lender that offers loan against mutual funds. Many banks, non-banking financial companies (NBFCs), and fintech platforms provide this service. Compare interest rates, processing fees, and loan terms to choose the best option.
2. Check Eligibility
Ensure mutual fund units are held in dematerialized (demat) form. Some lenders may accept physical units, but the process is with demat units. Furthermore, check if the lender accepts the mutual fund house where your investments are held.
3. Apply Online
Go to the lender’s website or their mobile application. On that website, go to the loan against mutual funds where you fill in an application form. You would need all details of your name, contact details, and folio number of mutual funds you own
4. Pledge Mutual Funds
The lender would demand that you pledge mutual fund units as collateral. You can do this either through the RTA, the Registrar and Transfer Agent, or the platform for your mutual fund investments. Facilitate access to the mutual fund account for lien marking by the lender.
5. Verification and Approval
The lender will scrutinize the mutual fund portfolio and the eligible amount for borrowing. After proper verification, the loan gets sanctioned with direct disbursement to the bank account.
Online funds can be borrowed, a hassle-free way of raising urgent financial requirements without disturbing your investment goals. Minimal documentation and quick processing have made it the preferred option for most investors. Always compare lenders and understand the terms before proceeding to ensure that this financial tool works in your favour.