Loan Against Mutual Funds: Key Things To Know, Check Advantages Now

A loan against mutual funds is an excellent strategy to leverage your investments and obtain immediate cash. They can also assist you in meeting your short-term financial demands without having to redeem units in the event of an emergency. To meet your short- to medium-term needs, you might borrow against your equity or debt mutual fund schemes.

What Is Loan Against Mutual Funds (LAMF)?

A loan against mutual funds, as the name suggests, is a credit facility that you can obtain by pledging your mutual fund units. When you use the units as security for the bank, you retain ownership but do not have the right to sell them.

Requesting a lien from your mutual fund registrar allows you to pledge units as security. A lien in the most simplest of terms is the right of a creditor to keep possession of a property until the debts are cleared. In the event of a default or non-repayment, the bank has the authority to enforce the lien. They will direct the Asset Management Company (AMC) to liquidate your Mutual Fund units and reclaim the loan amount from the proceeds.

A lien in the most simplest of terms is the right of a creditor to keep possession of a property until the debts are cleared.

Loan against mutual fund operates on the Loan to Value (LTV) principle. You can get a loan against both your equity and your debt funds. The loan amount offered is determined by the term of the loan. The margin requirements and other loan parameters differ from one bank to the next.

Loan Against Mutual Funds: Benefits

Competitive Interest Rates:

A loan against mutual funds is issued at a competitive interest rate because it is a secured line of credit. As a result, the loan is significantly more cost effective than personal loans and credit cards. Furthermore, interest is charged solely on the amount of the loan that has been used. You can repay the loan in EMIs based on your ability to repay.

Dual Benefit:

One of the most significant advantages of taking out a loan against mutual funds is that you may protect your investment while meeting your financial needs. Because your mutual fund units are committed with the bank, they continue to offer you respectable profits. You can also get a top-up loan if the value of your mutual fund units rises.

Quick Disbursal:

You can request for a loan against mutual funds online through a straightforward process. The loan request will be processed and disbursed as soon as possible, allowing you to meet your financial obligations on time.