How to Avail Loan against Mutual Funds? – A Complete Investor’s Guide

By Advisorymandi
9-July-2019 2:48:29 PM

“It is quite unfortunate to find yourself in a situation of the financial crisis and unable to manage the money on short notice.” – That is what happens to everyone in some part of life. Therefore, it is important to do investment planning so that you can reap the benefits at crucial times. For an average citizen, getting a loan is not an easy task especially when there are certain parameters and rules & regulations that make it difficult for a person to avail loan services in short period of time. One who invested in real-estate knows very well how difficult it is to get a loan against the property and other low-liquid assets. But, not all people know that they can also avail loan against their mutual fund investments. Loan against mutual funds are short-term but can be effectively used in emergency situations.

Here, we’re going to discuss, how one can avail loan against mutual funds? – Read below to learn more about loan against mutual funds.


Loan against Mutual Funds

Availing loan against mutual funds could bring you the opportunity to fulfill your immediate monetary requirements and continue your systematic investment plan (SIP) without any hindrance. Even the process is quite simple. All you have to do is to approach any non-banking financial company (NBFC) or bank where you’ll have to pledge your mutual funds units as security.

Like we said earlier, you don’t need to stop your SIPs because you’ll be pledging your mutual fund units as security for the debt. The loan will be given to you on the basis of the value of the units in the portfolio and time-frame you choose.

Another advantage of availing loan against mutual funds is the low-interest rate. Unlike unsecured personal loans, here you will be getting a secured loan with a lower interest rate. However, it will be subject to terms and conditions but if you are a potential customer of the bank with a good, long-standing record then you might get the benefit of the lower interest rate.

Now let’s come to the next step: Lien.


Lien for Mutual Funds

‘Lien’ is a document that gives the bank the ownership right to sell or hold the units of your mutual fund. Once the lien the marked, you will have no authorization to sell or redeem the units of your mutual funds. For lien transfer, you need to visit your broking house and ask for a lien on your units in favor of the bank. If your mutual fund is jointly held then you along with your partner must sign the request letter for lien transfer.

In order to apply for lien marking, you will need to fill up the form for marking a lien with the details of your folio number, scheme name, plan and number of units.


Apply for Loan against Mutual Funds

The loan against mutual fund can be availed through online and offline modes. If you are holding the units in a demat form then you can apply online but if the units are in physical form, a loan agreement with the financer and bank should be in place.

You need to note that the amount of loan you will get against mutual fund will depend from mutual fund to mutual fund. For instance, the loan against equity mutual funds is close to 50% of the NAV of the pledged fund. But, since equities are volatile and could decrease in value if the stock market crashes, therefore, you will need to pledge for units to cover the shortfall. However, the debt funds are quite stable and can provide the loan of higher than 50%. But, in the end, everything depends upon the bank.

Once the loan is fully paid, the finance can send a request to lift up the lien.

Availing loan against mutual fund is a good way to raise capital for short-term financial requirements where you don’t need to sell or redeem units of the mutual fund. It can be a better option of the loan than traditional methods.

Hope, this article helped you in understanding all about loan against mutual funds. Nevertheless, if you have any query or would like to add something then please don’t forget to mention in the comment section below.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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